Policyholders feel heat from bushfires

RAINSTORMS have extinguished the last of Sydney's 'Black Christmas' bushfires, but the arguing has just begun over the insurance implications of the estimated A$70m (£25m) damage.

Insurance companies, which paid out more than A$1.5bn for a massive Sydney hailstorm in 1999, are already saying home and car premiums will have to rise by A$60 per policy, on average, to cover the extra costs.

Amid a chorus of complaints, the industry counters that high taxes in New South Wales are resulting in chronic under-insurance among Australian property owners. The argument is that premium tax rates in NSW are the highest in the world and a disincentive for consumers to take out adequate cover. Many of those affected by the fires say their cover is insufficient to cover their damage bill.

At A$70m, the recent Sydney bushfires do not compare with other recent major disasters, but the payouts are not exactly a Christmas present for an industry which had a nightmare in 2001.

Coming after billion-dollar losses posted in 1999 and 2000 by two companies - GIO and Reinsurance Australia - which ventured into the quagmire of global re-insurance, Australia's second-largest insurer, HIH, collapsed last year with debts of more than A$5bn.

Then came the 11 September attacks on the US, with Sydney-listed Lloyd's member QBE Insurance exposed to A$250m. The industry's response has been to pass costs to the consumer, with many premiums already doubling over 2001 as the sector sought to recover from the HIH disaster.

It puts the industry on track for a showdown with the Australian Competition and Insurance Commission, which has already put it on notice over last year's premium rises.

'We do extensive risk calculation because we are in the business of disasters, but it makes it very hard when human stupidity, in the form of arsonists, takes over,' said a source at a Sydney-based insurer.

Many of the 100 fires which ravaged Sydney over the Christmas and New Year period were the work of mostly teenage boys who, although caught, are unlikely to be charged. The fires burnt out 550,000 hectares of land, destroyed 115 homes, 250 buildings and other structures, while 6,000 farm animals died. In addition to the estimated A$ 70m damage, the NSW Government spent around the same fighting the fires.