Counting the cost of the Australian wildfires

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Respite from the wildfires has come to Australia with the January rains and cooler conditions. Today, moving on we know that the most devastating fires in Australia over the last ten decades have all taken place amid, or at the end of a long period of drought and this year’s fire was no exception.

The worst affected states were New South Wales and Victoria, and one blaze in particular was described as a “mega blaze” as it merged on the border of the two states. The fires started earlier than usual in 2019, and have been blazing since September. An estimated 1.25 billion animals have been lost, 29 people have died and an estimated 27 million acres have burned.

With over 1300 homes razed countrywide it is estimated that insurance claims for property losses could easily reach $600 million. Unfortunately, with many people either not insured at all or underinsured, the true cost is likely to be much higher.

Damages to homes

With thousands of people forced to flee their homes, Australia’s insurance council (ICA) estimates that insurance losses will be at $485 million. So far, claims of more than $ 260 million have been lodged and that doesn’t include the $39 million that were lodged for the September and October wildfires. Of the approximately 6,000 claims already received, approximately 4,299 are for damaged properties and include the approximately 1,800 homes that have been completely destroyed.  

Since many homeowners have not been able to return to their homes yet, it is still too dangerous, claims can take quite a few months to be filed and typically can take up to a year, according to insurance experts. Many areas were also affected by power and telecommunications outages and assessors can only move into them once they are declared safe.

Financial strain for property owners and insurance providers

Many homeowners opt to not cover their home for the additional protection costs to rebuild in fire zones. This will have an impact on how they are able to rebuild the damage. It is estimated by the ICA that at least 10% of households are underinsured by at least 10% in order to lower their insurance premiums.

Even though most insurers have factored fires into their claims forecast, if the amounts claimed surpass the $500 million-mark, insurance providers are likely to feel the financial strain.

Economic impact

Besides the thousands of homes that have been destroyed, the economic implications are huge. Farmland, vineyards, orchards, crops and livestock have also been destroyed. This is likely to have a huge impact on the economy of Australia.

Environmental toll

We have seen footage on news sites and in newspapers of the animals affected by the wildfires, and it is estimated that in New South Wales alone, 480 million animals have died.

With such severe fires, forestry experts are worried that the large tracts of destroyed alpine and gum (eucalyptus) tree forests will not manage to bounce back in two decades, as they typically do. This also reduces the chances of the wildlife recovering in these areas.

Carbon emissions and climate change

Scientists believe that two natural meteorological phenomena combined with global warming are what caused this year’s devastating fires.  The evidence of global warming and its effects have been there for decades, and a government -commissioned climate report from 2008 suggested that from 2020 onwards, fire seasons would start earlier, end later and be more intense. Extreme temperatures make fires more likely and Australia has experienced nine of its ten hottest years on record in the past 15 years.

Taking future measures

Insurance companies will definitely be increasing their natural perils forecasts in the coming years as Australia faces the prospects of more wildfires in the future. Especially if we also take their effects on tourism and public health into consideration.

The Australian government has set up a national-fire recovery fund to provide support to communities, farmers and businesses in the country. The $ 2 billion will contribute toward rebuilding the economy. Volunteers and donations have also been forthcoming from around the world.

Considering that the indirect costs of the wildfires are hard to estimate, the call from the Australian Institute for the creation of a natural disaster fund, financed from a coal levy, is starting to sound quite sensible.

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