Executive board member Geoff Summerhayes warns of the “high, rising and volatile costs” of natural disasters
The Australian Prudential Regulation Authority (APRA) has called for significant funding for investments in natural disaster mitigation.
In a speech delivered to the Australian Business Roundtable for Disaster Resilience and Safer Communities, APRA executive board member Geoff Summerhayes said the “high, rising and volatile costs” of natural disasters was leading to declining insurance affordability and accessibility.
He said tackling the root cause “through greater investment in mitigation to protect homes, businesses and infrastructure from damage” was the most effective way of meaningfully and sustainably addressing the issue.
”There is no doubt that some physical mitigation measures, such as flood levees or sea walls, can be expensive, however the billions spent each year cleaning up from disasters suggests the money is there – it’s just being spent after the damage is done.”
“There is a lot of merit in the Productivity Commission’s assessment that paying for mitigation is far cheaper than paying for post-event remediation, and enduring the subsequent economic repercussions.”
Summerhayes noted that research by the Australian Business Roundtable predicts the total economic cost of natural disasters to Australia will reach $39 billion annually by 2050. US research suggests that every $1 spent on resilience saves up to $11 in response and recovery costs.
”With support from the Government, Australia’s financial sector and the broader economy are sufficiently strong and well-prepared to absorb and bounce back, even taking COVID-19 into account,” said Summerhayes. “But that resilience would be continually tested should last summer’s experience become the new normal.”
“Alarmingly, the clear message from Australian and global scientific experts suggests this may be the case. The Bureau of Meteorology says Australia’s climate has warmed just over 1 degree Celsius in recent decades, contributing to a long-term increase in extreme fire weather and the length of the fire season… we must start preparing for a more dangerous future.”
Townsville is one of the most flood-exposed cities in Australia and is also highly vulnerable to cyclones. ICA data shows that the average premium for a building that is compliant with cyclone building codes and has no significant flood exposure is $1,933. For buildings that are believed to be cyclone non-compliant with an acute flood exposure, average premiums rise to $2,710.
ICA modelling suggests that reducing flood risk through permanent mitigation could reduce insurance premiums by up to 21 per cent in Townsville. Further significant premium reductions would be possible through improving building resilience to storms and cyclones, and improvements in flood data to show first-floor heights.
“The clear and urgent message to all levels of government from APRA, and from many other organisations including the Productivity Commission and from numerous inquiries, is that investments in mitigation that reduce the physical risk to properties is the only sustainable way to reduce insurance premiums,” said ICA CEO Andrew Hall, welcoming APRA’s call for funding.
“Without mitigation, the damage bill in vulnerable communities – northern Australia in particular – will continue to soar. At present only 3 per cent of natural disaster budgets are spent on prevention.
“The cost of inaction will ultimately cost governments and communities much more than sensible, timely and effective investments in prioritised mitigation programs.”