Canadian Underwriter

Construction of mitigation infrastructure to protect against flood should be seen as nation-building projects: Australian insurers

April 12, 2017   by Canadian Underwriter

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The Insurance Council of Australia (ICA) cited the Canadian government’s budget commitment to create a Disaster Mitigation and Adaptation Fund in a recommendation to its own federal government to treat the construction of mitigation infrastructure to protect flood-prone towns as nation-building projects.

Speaking Wednesday before the Senate Economic References Committee Inquiry into Australia’s General Insurance Industry, ICA CEO Rob Whelan called on the federal government to up funding to at least AU$A200 for construction of mitigation infrastructure, matched by states and territories.

Whelan further recommended that Australia’s federal government join state, territory and local governments in identifying and making provision for mitigation projects across the country. “This is one form of nation building that would have a lasting positive impact,” he argued.

“Canada’s Liberal federal government had appreciated the need to support disaster risk reduction, committing $2 billion (AU$1.99 billion) in its 2017 Budget to create a Disaster Mitigation and Adaptation Fund,” Whelan pointed out in a statement.

Related: Landmark federal investments for disaster-proofing communities, enhancing resilience: IBC

“In a jurisdiction that faces similar perils to those experienced in Australia,” he said before the committee, the funding “demonstrates increasing support for disaster risk reduction in that country.”

Specifically, Canada’s 2017 Federal Budget notes the newly developed, cost-shared fund will be for “built and natural, large-scale infrastructure projects supporting mitigation of natural disasters and extreme weather events and climate resilience.”

Said Whalen, “Today, in the aftermath of Cyclone Debbie, the case for urgent investment in permanent, well-designed mitigation for disaster-prone communities cannot be clearer.”

Although far from tallied, he told the committee that insurers are paying out AU$2 million a day in emergency repairs and accommodation, expecting that insured losses for the late-March event will total more than AU$660 million.

The anticipated total is up considerably from about a week after Debbie hit, reported RMS, which cited the insured loss estimate at AU$410 million as of Apr. 5. At that point, there had been 35,370 insurance claims in Queensland and New South Wales, the catastrophe modelling firm reported.

AIR Worldwide reported at the time that Cyclone Debbie roared ashore in Queensland as a Category 4 storm (similar to a Category 3 Atlantic hurricane) shortly after noon. With wind gusts of as much as 260 km/h and heavy rain, Australia’s most powerful storm since 2011 brought with it damaging winds and caused flooding.

Related: Insured losses from Cyclone Debbie reach AU$306 million: Insurance Council of Australia

The cyclone intensified quickly after reaching land and by day’s end had been downgraded to a Category 2 cyclone on the intensity scale, AIR Worldwide added. It was suggested that structural damage can be significant, notably for older buildings.

“The cost to governments in disaster relief funding, loans and subsidies, as well as replacement of major infrastructure, could easily outstrip this amount,” Whelan maintained.

Where mitigation does not exist or poor decisions were made about the design, he suggested, “floods have proved devastating. Insurers have to price the risk of these events, and where the risk is high, so, too, are the premiums.”

Discounting premiums provides “a false sense of security, encouraging more inappropriate development in high-risk areas,” Whelan argued.

“The consequence of inaction is community devastation and hundreds of millions of dollars being spent by governments on disaster recovery, which has no impact on the underlying problems,” he told the committee.

“In some respects, insurance is the canary in the coal mine,” Whelan argued.

“Premiums alert individuals and governments about the high risks of living in certain areas. These signals should spur action in the form of mitigation and resilience measures, better town planning to prevent inappropriate development and improvements to building codes,” he emphasized.

“The pattern where 97% of government disaster funding is expended after an event ignores the overwhelming evidence of the massive economic benefit of funding prevention where $1 spent on prevention can save up to $10 on recovery.”

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