The ongoing Australia bushfires are significant in terms of duration and geographic breadth of burnt area, says global broking and risk management firm, Aon. The fires had burnt across more than 10.7m ha of land or around 8% of Australia’s total vegetation by 8 January.
Referring to reinsurers, Aon states that the nature of the current losses from the bushfires means there is the possibility that reinsurance impact will not be as significant as some previous events.
This is because definitions applied to bushfire events in reinsurance contracts limit recoverable damage either by time (i.e. a maximum duration) or geographical extent (i.e. distance or territorial boundary).
However. the economic loss is likely to be extreme, perhaps unprecedented, and the longer-term impacts must be considered, with improving Australia’s urban environment resilience at the centre of those discussions, says Aon.
Aon says that the national burnt extent is extreme but not unprecedented. A total of over 100m hectares (1m km2), 15% of Australia’s land mass, burnt across largely remote grassland areas of central Australia during the 1974-75 season, but due to the remoteness of the area, experienced limited property loss.
The current events across Australia have seen less than 0.1 destroyed buildings per sq km to date. In other significant fire seasons in Australia (Victoria in 2009, ACT in 2003, NSW in 2013), Aon finds there is more than one exposed property every 1 sq km. This analysis highlights that although there has been an extremely large total area burnt throughout the 2019-20 bushfire season to date, the impact on the built environment has been significantly less than what might have been expected compared to previous Australian fire events. This is due to fires burning through large remote areas of each state, mostly NSW and VIC, with the majority of impacted towns having populations less than 10,000.
Westpac has estimated that the bushfires will cost Australia A$5bn ($3.4bn) in direct losses and lop off 0.2 to 0.5 percentage point from its economic growth. Moody’s Analytics has estimated the economic damage will exceed the record A$4.4bn set by the 2009 blazes in Victoria.