If you have a client in this space, this solution could be of significant benefit to you – if you do not, we hope you will agree it demonstrates Miller’s desire to add value and create innovative solutions to complex problems.

The Situation

Bushfire is a ‘hot topic’ for liability insurers writing Australian business. The ‘Black Saturday’ bushfires in February 2009, which caused over 173 fatalities, destroyed over 2,000 homes and burnt over 1.1m acres cost the liability insurance market over AUD1bn. 

This was far from an isolated incident; In 2015 five large bushfires claimed six lives and burnt 224 acres on average each. In 2016 alone one large bushfire claimed two lives, destroyed 181 homes and ravaged 170,000 acres. 

The reality remains that these fires cause devastating damage, cost lives and leave surviving families destitute, resulting in the need for deep pockets to allow for indemnification. State or local governments may be sued for ‘failure to warn’; utility companies for the allegation that their power lines must have caused the fire; and vegetation management contractors for allegedly failing to trim back the vegetation surrounding those lines. 

The Challenge

With domestic insurers having almost no appetite for bushfire cover the State government, local governments, utility companies and vegetation management contractors are all looking to London for a solution.

With all the aforementioned stakeholders buying huge limits, bushfire is one of the few examples where Australian liability insurers face accumulation and aggregation issues, which would usually fall under the responsibility of their property colleagues writing catastrophe exposed accounts. As such, it has lead to a bushfire liability capacity crunch. 

This capacity crunch is being acutely felt this year due to the 2018 Californian wildfire season being the deadliest and most destructive on record. A total of 8,527 fires burning an area of 1.8m acres lead to a significant number of London insurers pulling out of bushfire/wildfire altogether.

In the past quarter our team has managed to complete a large standalone placement for a AUD100m bushfire limit for a large vegetation management contractor. This arose after the incumbent London broker was unable to get the deal done. Miller completed this placement by approaching over 70 markets (most several times) over a six-week period. We were forced to use insurers’ nett lines, non-admitted insurers writing on a DOFI basis, facultative reinsurance options and drew on support from our colleagues in Brussels, Paris and Singapore. Despite the insured having some of their excess layers see 800% price increases and the overall programme paying significantly more than expiry, the insured was extremely happy and affirmed that the placement could not have been done without our guidance and expertise. 

The issue going forward, however, is that by completing that placement accumulation issues are now aggravated further, and bushfire capacity is even more limited. It is also worth noting that it was also only possible because the insured possessed the balance sheet to pay the premium and carry the excess the market demanded.

The Solution

Miller are looking to partner with a number of supportive Australian brokers who have clients in this space who can collaborate to share a combined bushfire limit (with a number of reinstatements). The benefit to the insureds is that the shared limit will be for AUD100m allowing them to satisfy almost all the utility companies contractual requirements/expectations in an affordable way. This is because by pooling their exposures they are not each paying individually for the market’s bushfire capacity allocation; they are sharing this cost with their peers. 

The mechanics of the policy would see a low minimum and deposit premium paid up-front by at least 10 like-minded vegetation management contractors. They will each also need turnovers in excess of AUD20m, as well as proven track records and strong cultures of risk management. Once operational, should additional contractors meet the entry requirements, they will then contribute proportionately to that minimum and deposit premium and any adjustment due on expiry, reducing any additional premiums that would otherwise be owed by the contractors who had already signed-up.
 
If this could be of interest for one of your insureds, or for more information, please contact Philip.johnson@miller-insurance.com