3. Climate Change and Personal Insolvency

In the absence of quantitative data, we can look to media reports, public inquiries and other sources for qualitative evidence that extreme weather is placing Australians at increasing risk of personal insolvency. The Queensland floods of 2011 provide a vivid insight into the potentially severe and long-lasting financial impacts of extreme weather. The floods were caused by a severe tropical cyclone, Cyclone Tasha, which originated in the Coral Sea and reached the northern coast of Queensland on 25 December 2010.^[14] With the cyclone came heavy rain, which spread southward and caused extensive flooding in many areas of Queensland. The floodwaters reached the regional city of Toowoomba on 10 January 2011 and the state’s capital, Brisbane, on 12 January.^[15] A Commission of Inquiry in 2012 found that 78% of the state was declared a disaster zone, with 2.5 million people affected and 29,000 homes and businesses experiencing ‘some form of inundation’.^[16] Thirty-three people lost their lives. Compounding the trauma of these deaths, and the terror of witnessing the flood descending on their towns, many Queenslanders returned to homes that were saturated with dirty water and smeared with foul-smelling mud.^[17] By 24 January 2011, the Insurance Council of Australia reported that victims of the floods had lodged more than 31,000 separate claims worth $1.2 billion.^[18] By November 2011, this figure had risen to 58,463 claims.^[19] The Commission of Inquiry estimated that the total cost of the floods exceeded $5 billion.^[20]

As the Chief Justice noted in his 2011 address, the floods created immediate, intense financial hardship for many thousands of people. ‘Many individuals and businesses … had to confront the reality of having their home, belongings, cars and paperwork washed away,’ His Honour observed, ‘whilst the obligation to pay for such items persist[ed] as well as the need to replace them.’^[21] The floods created particular challenges for homeowners with mortgages: some properties depreciated sharply in value,^[22] to the extent that the owners’ mortgages were greater than the value of the property.^[23] Victims endured months of uncertainty, as they waited for insurance companies to process and assess their claims. As the Commission of Inquiry found, many households affected by the Queensland floods did not understand that their insurance policies excluded flood cover. Some discovered too late that their policies did not include flood damage or only covered certain types of flood (eg a ‘flash flood’), meaning that their claims were declined.^[24] In April 2011, the Brisbane-based Courier-Mail reported that the financial impact of the floods was only gradually ‘becoming apparent’ as insurers finalised claims, with households frequently receiving less than they expected and some learning that they were not eligible for compensation at all.^[25] The newspaper noted that while quarterly personal insolvencies had declined nationally by 16%, compared to the previous year, they remained ‘stubbornly high’ in Queensland.^[26] This is confirmed by AFSA’s published statistics^[27] and became more pronounced in the two-year period following the floods. In the first quarter of 2013, there were 2,176 personal insolvencies in Queensland, a decrease of 8% from the first quarter of 2010. By contrast, national personal insolvencies declined to 7,442, a decrease of 18% over the same period.^[28]

The financial impacts of the 2011 Queensland floods were still palpable when the same region suffered further extreme flooding in 2022. This flood, which affected south-east Queensland as well as large areas of New South Wales, was at that time ‘the costliest climate driven disaster in Australia’s history’.^[29] For those who had already experienced the 2011 Queensland floods, its impact was especially acute. A national news outlet reported the experience of one man, living in Grantham, whose family was ‘still reeling financially from the floods of 2011’.^[30] The family had declared bankruptcy after the 2011 floods and had ‘just got out of bankruptcy’ when the 2022 floods occurred. ‘We’ll probably end up back there again,’ the man reflected.^[31] For some, the 2022 floods were even more harmful than those of 2011, because in the intervening period, their insurance policies had become unaffordable. In Grantham, in 2022, an auto warehouse owner told reporters he had lost 60 uninsured cars in the floods.^[32] Following the 2022 floods, a Senate Select Committee Inquiry identified significant failures in the insurance industry’s response to extreme weather events. It noted that, for many victims, the experience of pursuing ‘prolonged and complex claims’ was ‘more traumatic than the disaster itself’.^[33] While the committee did not specifically consider the link between such events and personal insolvency, it observed that for a particularly ‘vulnerable cohort’ of Australians, insurance had become prohibitively expensive or ‘simply unavailable’ due to their location in ‘high risk’ areas.^[34] Such households are exposed to immense financial loss in the event of a natural disaster.