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Disaster-prone areas of Australia frequently hit by extreme weather events like floods and fires could soon become uninsurable, experts are warning.
The key points
- Flood damage in Queensland and NSW could reach the billions
- Insurers warn parts of Australia could become uninsurable
- The insurance industry wants governments to invest $2 billion over five years to mitigate risks
The damage to the New South Wales and Queensland floods this week is expected at the order of the billions.
Insurance Council of Australia chief executive Andrew Hall told The Business the increased frequency and severity of damaging weather events would drive up the cost of policies and make some areas uninsurable.
He stated that premiums will rise if there is not more done to reduce risk and invest more money upfront for resilience and mitigation.
Many households and businesses are finding it difficult to afford insurance premiums, especially in high-risk regions, as climate change becomes more severe and extreme weather events become more common.
“It depends upon the industry. In some cases, it could be as high as 20% or 30%. [premium increase], but sometimes it’s double, triple, quadruple,” Alexi Boyd from the Council of Small Business Organisations Australia (COSBOA) said.
Climate Risk Analysis for 2019 one in 20 properties in Australia could be uninsurable by 2100 if nothing is done to address the escalating risk. Thousands more could see their insurance premiums double or triple within decades.
“We already have an insurance crises”
Antonia Settle, a postdoctoral fellow at University of Melbourne, says rising insurance premiums are creating an underinsurance crisis in Australia.
She stated that although there is an existing insurance crisis in many places, she believes it is becoming a more serious national problem.
Ms Settle claimed that the failure to address this problem would have massive consequences for the economy.
On Thursday, Ted Nader and his colleagues were working around the clock sandbagging and moving stock to protect the service station he manages in south-west Sydney from being inundated by flood waters.
Just metres away from the flood-prone Georges River, it is the fourth time in a decade the business has been affected by inundation.
Last year, flooding caused $150,000 in damage to the store. In a separate weather event a 40,000-litre Ad Blue tank above ground was also damaged.
“We are only covered up to $100,000.” Mr Nader stated that any other event from there would be for us to fix and pay our own pockets.
What’s your solution?
In the wake of this week’s floods, Liberal MP Warren Entsch called for the federal government’s planned reinsurance pool for northern Australia to be expanded.
The fund would limit insurers’ losses to $10 billion. In addition, the discount reinsurance will allow insurers to lower their premiums.
But the legislation, which is currently before federal parliament, is not supported by the insurance industry, the community sector or the ACCC, which said the mechanism would not lower premiums.
Only 3% of disaster spending can be attributed to prevention
Instead, the insurance industry wants the federal and state governments to spend $2 billion in the next five years to mitigate the risk of extreme weather events and climate change, including coastal inundation. It argues that will reduce premiums.
Mr Hall said 97 per cent of funds spent on natural disasters in Australia go into the cleanup, while only 3 per cent is spent on prevention.
He stated, “We must radically change this formula and put more money in mitigation so that communities are better protected.”
Mr Hall stated that mitigation measures have reduced premiums.
“We’ve seen this happen already in Queensland, where flood mitigation was built around the township of Roma, premiums reduced by 30 per cent,” Mr Hall said.
Steve Johnston, Suncorp chief executive, said that targeted subsidies for policyholders could be used to mitigate risk.
“It seems ironic to me that you can get a subsidy for a solar panel, but you can’t get a subsidy to batten down from a category-five cyclone,” he told a press conference in Brisbane on Wednesday.
Shane Stone (head of federal government’s disaster relief agency) told Nine papers that he would like to see an end flooding.
Amanda McKenzie, chief executive officer of Climate Council, stated that the government should be open with communities regarding the realities of climate changes.
“So it might be that we must move to higher ground in certain places.”
“The vast majority are not insured”
Lismore is an area that is currently uninsurable. The town suffered a major flood in 2017 and insurance is expensive for many residents.
Ellen Kronen, Business Lismore president, said that she believes the vast majority of uninsured people.
“Or they can be like me and have public liability.” [insurance]Or they might have insurance that covers rent at alternative premises, or shop fittings. But not if the flood is the result.
After days of lending support to other traders, on Friday, Ms Kronen felt up to surveying the damage done at her own business, Made In Lismore, which sells locally made art and products.
“I had seen photos, and it looks like a bomb, literally, has been dropped in the CBD.”
In the middle of the sludge, some items had survived.
She said, “It looked like everything had gone through a spin cycle and had mud all over it.”
“China was unbroken, and my cane chair that has been with me since I was five years old was in one piece.”
Ms Kronen stated that there were glimmers for hope among the debris but that many businesses would not reopen if they didn’t have federal or state assistance.
“We’re a tough group up here. But that resilience can only go so far before you give up and say “I’m done,” she said.
“And I hope that doesn’t happen.”
