Australia is being ravaged by the worst wildfires seen in decades, with large areas of the country devastated since the fire season began in July 2019. The blazes have burned through an area almost three times the size of Wales. A total of 27 people have died nationwide, and in the state of New South Wales (NSW) alone, more than 2,000 homes have been destroyed or damaged.
Insurance Impact
According to the Insurance Council of Australia, more than 8,200 claims worth about $644 million had been lodged by affected homeowners and other policyholders. The ratings agency S&P said that the claims were likely to reduce the profitability of insurers, which leads to an increase in premiums and make insurance products less affordable.
Global reinsurance firms such as Swiss Re and London-listed Hiscox, will eye the rising claims warily. Though most are likely to be limited to Australian firms, reinsurers take on risk from policies worldwide. Lloyd’s of London said it is too early to put a number on the impact the blazes will have on its members.
Economic Impact
The economic impact has been particularly severe on Kangaroo Island, off the coast of South Australia.
Tourism industry has taken a significant hit during what is normally peak season. The visitor numbers are low due to smoke haze and safety uncertainty. Koala tourism will also be severely affected as up to 30% of the koala population from NSW is expected to have been lost in the fires, alongside 50% from Kangaroo Island – the last remaining wild population not infected by deadly chlamydia. A 2014 study suggests koala tourism could now be worth as much as $3.2 billion to the Australian economy and account for up to 30,000 jobs. Therefore, the wildfires may disrupt job security in the area affected by the wildfires.
In the macroeconomic aspect, chief economist Shane Oliver from AMP Capital, a global investment management company, estimated the fires will wipe off 0.25% to 1% of Australia’s GDP growth this year. This affects the Australian government’s nearly-decade-old goal to return the federal budget to surplus.
Government Intervention
Australian Prime Minister Scott Morrison has announced the establishment of a $2 billion National Bushfire Recover Fund, which will assist in rebuilding efforts over the next two years following the current nightmare fire season. The funds will go towards supporting small businesses, supporting local councils, providing mental health support, investment in social and economic infrastructure, as well as providing environmental protection and protection for local wildlife.
The Prime Minister also said that the surplus was not his government’s current primary focus as he prioritise the human cost and ensuring that his government will meet whatever cost they need to meet.
This post was originally written for the Heriot-Watt University Students’ Actuarial Society February 2020 Edition.
