The devastating wildfires in Los Angeles aren’t just wreaking havoc in the U.S.—they could also hit Aussies where it hurts: their wallets.
Insurance experts warn that this disaster, which has destroyed thousands of properties, could drive up premiums here in Australia. How? It’s all about reinsurance.
Reinsurance is when local insurers get their own insurance from big global companies to protect themselves against massive losses from disasters like these. David Richardson from The Australia Institute explained, "When reinsurers take a financial hit from events like the LA fires, they pass those costs down the line." In simple terms, global reinsurers are likely to hike their rates, which means Aussie insurance companies will have to do the same.
The LA wildfires are shaping up to be one of the costliest natural disasters in U.S. history, with damages potentially hitting a staggering $242 billion AUD. And while the fires may seem a world away, their financial ripple effects will be felt globally, including here at home.
KPMG insurance expert Scott Guse said Aussies could see premiums rise by a few percent as a result. "These global companies will reassess the risk here in Australia to recover some of their losses overseas," he said.
But there’s a glimmer of hope. Guse noted that Australia’s recent run of calm weather—no major floods, bushfires, or storms—might help offset some of the cost pressures and even lead to a slight drop in prices in certain areas.
That said, rising insurance costs are already leaving many Australians struggling to cover their homes and belongings. Richardson warns that any further price hikes could force even more people to go without insurance.
So, while the fires rage thousands of kilometers away, their impact could hit closer to home than many of us expect. It’s a reminder of how interconnected the world of insurance—and risk—really is.
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