A national emergency has been declared in Australia, prompting risk managers to review their natural catastrophe exposure once more

In the flood-hit town of Lismore, New South Wales, Australian Prime Minister Scott Morrison declared a national emergency. As the floodwaters rose in early March, washing away cars, homes, and businesses, the Australian Defence Force flew rescued residents and workers from their rooftops.

Using emergency powers sought after the Black Summer bushfires of 2019/2020 for the very first time, Morrison described the flooding as a “once in 500-year event”.

In many parts of Australia, the threat of severe natural catastrophes is growing. Extreme bushfires and floods have devastated New South Wales and Queensland on the country’s east coast, prompting sweeping changes in the regional insurance market. Analysts expect premiums to rise by 10 per cent, or even higher, in risky areas.

Risk managers in Australia are becoming increasingly aware of the growing threat and disruption to their operations as critical infrastructure and buildings are damaged.

According to figures from the Insurance Council of Australia (ICA), released in mid-March, insurers have received more than 135,000 claims relating to flooding in Southeast Queensland and New South Wales.

Insurance losses and reinsurance industry losses are estimated to have surpassed A$2 billion. As monthly rainfall records were broken in Sydney in March, Australian authorities issued evacuation orders.

The floods are set to result in an insurance industry loss of $2 billion, with reinsurers expected to assume most of the losses.

Growing climate extremes

Corporate risk managers in Australia’s economic centres are constantly reviewing their risk exposures in the wake of the severe climate events.

Nick Deitz, a risk and compliance manager at multinational software company Atlassian, based in Sydney, says his company has followed standard procedures since the floods.

“We treated the NSW floods like any crisis. So staff safety was number one [priorty], but we also wanted to reach out to offer support and see where the organisation can help.”

“The floods were yet another example of the risk of climate change, so they fit within that sphere and are tracked accordingly.

”We look at where staff live, what natural disasters are relevant, and what resilience we have.”

Like many businesses in the region, Atlassian has built resilience by ensuring employees can work from home.

“Generally speaking, we have built resilience via the distributed nature of our workforce, especially now anyone can work from anywhere.”

While Atlassian did not experience a significant impact from the events, it is becoming more aware of growing climate risks in Australia and overseas.

As a global company with offices in the US, Atlassian tracks natural disasters around the world as it looks to maintain resilience, Deitz says.

“Since then [the NSW floods], we’ve had tornadoes in the US, so these events are occurring more and more.”

Risk mitigation in a climate crisis

As flood risks grow across Australasia, what measures can corporate risk managers take to ensure their organisations remain resilient?

Terry Behan, transversal property manager APAC, AXA XL Risk Consulting in Australia, says organisations can take measures to reduce flood damage and disruption.

Behan suggests mitigation strategies could include temporary or permanent flood barrier walls, flood gates or doors protecting openings in walls, and diversionary walls for moving water.

Reinstalling electrical panels and control panels and connections, and critical equipment, at a safe height above ground floor level could also help companies in high-risk zones, he said.

While other factors, such as keeping valuable electronic equipment above ground level and improving stormwater drainage, could help, he says.

According to Behan, a risk manager’s flood plan should include understanding the potential maximum flood levels and the velocity of local floodwaters, and a formal means to monitor rainfall and rising waterfalls, as well as instructions on when emergency actions should be initiated.

Other factors, such as readying emergency power supplies, ensuring communication channels remain open, and ensuring there are travel contingency plans for employees, should also be part of a strong flood plan, he says.

Meanwhile, those reviewing new sites and office locations should take flood plains into account, he says.

“The best risk mitigation strategy is obviously in choosing the right location for the facility and ensuring supply lines are well out of reach of possible flood levels.”

“It takes some research to understand the risk. In some instances, local authorities set rules, and these vary from place to place.”

Organisations must be careful when considering construction in flood zones as events become more severe, he adds.

“While local authorities will often allow construction in flood zones, provided that the finished floor level and meaningful values are at least one metre above the 1 in 100-year flood level, in the case of the recent Lismore flood, such a building would have had a greater than 2 metre depth of water on the floor.”

“It should also be considered that the official 1-in-100 year flood level is sometimes in need of an update due to development in the area, or better available data,” he adds.

Learning from severe floods

What lessons can risk managers in Australia learn from the growing severity of flood events?

FM Global Australia’s operations chief engineer Mike Hunneyball believes natural disasters will continue to be “a major challenge” for organisations.

“There is an urgent need for investment in risk mitigation and management,” he says. “We advise all companies to look closely at all potential risks from the outset. With that knowledge, a business can determine where its vulnerabilities are, and consider investing in risk improvements or solutions to strengthen those aspects of the organisation.”

“In the case of the recent floods, supply chain challenges have been pushed to the brink,” he adds. “Understanding how a business delivers products and services to the market and what processes they depend on to do that is critical.

”For example, if a business knows a supplier is exposed to flooding, they can look to build greater resilience into their supply chain by using alternative suppliers or increasing inventory levels to manage disruptions.”

He advises Australian organisations to use local flood maps to identify risk exposure, review the potential impact on critical equipment, and install temporary and permanent flood protection.

Risk transfer, as always, will play a part in mitigation. Hunneyball notes that many insurers, including FM Global, work with companies on loss prevention strategies, with engineers visiting sites to help boost flood defences.

The FM Global exec says insurance is “one type of risk management option”, “but there are also many aspects of a client’s business that cannot be insured against, such as the company’s reputation and its ability to retain customers”.

“By understanding one’s risk, an organisation can determine where its vulnerabilities are, and consider investing in risk improvements or solutions to strengthen those aspects of the organisation.”

“We help clients quickly recover from flood losses, but know that the best course of action is to try and prevent a loss from happening in the first place. This is where our engineers can help find solutions that are tailored to each property and flood exposure,” he says.

Mounting claims

Premium costs are expected to rise in the coming years as flood events become more severe, and insurers will be busier than ever dealing with the effects of climate change and significant weather events.

“The recent flood events in Queensland and New South Wales are one of the most severe in Australia’s history,” says Julijana Sumner, head of claims for Australia at AXA XL.

“The current trajectory could see the economic cost on par with the floods of 2011,” Sumner adds.

“Insurance payouts will play a significant part in rebuilding the communities and getting businesses back up and running. The market is already working together to ensure this happens quickly.”