Maximum Foreseeable Loss (MFL) in 2025: Guide for Australian Businesses

Maximum Foreseeable Loss (MFL) has become a headline topic for Australian businesses in 2025. With volatile weather, cyber risks, and evolving insurance policies, understanding MFL is no longer just for risk managers—it’s a boardroom priority. But what exactly is MFL, and why is it so crucial this year?

What Is Maximum Foreseeable Loss (MFL)?

MFL refers to the largest loss a business could realistically experience from a single catastrophic event, assuming all reasonable safeguards fail except for legally mandated protections. Unlike theoretical worst-case scenarios, MFL is grounded in the realities of your business, assets, and risk controls.

• Example: For a Sydney warehouse, MFL could mean a total fire loss, assuming sprinklers malfunction but fire doors (as legally required) work.

• Why it matters: Insurers use MFL to set policy limits, premiums, and reinsurance terms. Banks and investors look at MFL to assess your resilience and creditworthiness.

Why MFL Is Front of Mind in 2025

Several trends are making MFL a critical metric in Australia:

• Climate Change and Natural Disasters: Extreme weather events—floods, bushfires, storms—have become more frequent and severe. The 2024–25 summer saw record insurance claims in Queensland and Victoria, prompting insurers to scrutinise MFL calculations.

• Rising Cyber Threats: After the high-profile cyberattacks on major Australian retailers and health providers in late 2024, insurers now demand that businesses estimate their MFL for cyber events, not just physical disasters.

• Insurance Market Shifts: APRA’s 2025 guidelines require insurers to stress-test their portfolios using updated MFL models. Businesses that underestimate their MFL may face higher premiums, policy exclusions, or even difficulty securing coverage.

How Is MFL Calculated?

Calculating MFL is part science, part scenario planning. Insurers and risk consultants consider:

• Asset Values: Replacement costs for buildings, equipment, inventory, and data.

• Vulnerability Assessment: What could go wrong if key protections fail? (e.g., a fire starting when the sprinkler system is offline for maintenance)

• Legal and Regulatory Safeguards: Only those protections required by law are assumed to function in the MFL scenario.

• Interdependencies: Losses can cascade—think of a manufacturing plant whose shutdown halts supply to key customers.

• Business Interruption: Lost revenue and extra expenses during downtime are included in the MFL estimate.

Leading brokers now use AI-powered modelling tools, updated with 2025 climate and cyber risk data, to help businesses arrive at defensible MFL figures for their insurance renewals.

Real-World Example: MFL in Action

Consider a logistics company operating a major warehouse in Western Sydney. In their 2025 insurance review, they work with their broker to model a plausible worst-case scenario: a severe bushfire, driven by extreme heat, that breaches the warehouse perimeter. The MFL calculation includes:

• Full loss of building and contents (replacement value: $45 million)

• Disruption to supply chain (estimated 8 weeks, $4 million in lost revenue and extra costs)

• Third-party liabilities if hazardous materials are released

The total MFL is estimated at $53 million. Their insurer uses this figure to set the policy limit and determine reinsurance needs. Because the company has invested in advanced firebreaks and water tanks (beyond legal requirements), their broker negotiates a premium reduction, showing how robust risk management can pay off.

What Should Australian Businesses Do Now?

• Review Your Risk Controls: Update your risk register and make sure all critical protections (physical and cyber) are maintained and tested.

• Get Expert Advice: Work with insurance brokers and risk consultants who understand the latest MFL modelling tools and 2025 policy trends.

• Document Everything: Insurers may require evidence of your risk controls and MFL calculations during renewal—be ready with up-to-date reports.

• Plan for the Unexpected: Consider business continuity and disaster recovery plans as part of your overall approach to managing MFL.

The Bottom Line: MFL Is More Than a Number

In 2025, Maximum Foreseeable Loss is a dynamic benchmark for risk management, insurance strategy, and business resilience. By understanding and actively managing your MFL, your business can negotiate better insurance terms, withstand shocks, and safeguard its future in a changing risk landscape.