“Amid predictions that natural disasters will become more frequent and intense into the future, the task of ensuring the community is prepared for these natural disasters is becoming more urgent.
“Some of these measures are expensive, and there will be arguments over who should bear that cost. But, as with the transition to the low-carbon economy, someone will ultimately pay, and waiting to act will only lead to higher costs in the long run.”
Investment confidence hit
Mr Summerhayes said without access to appropriate insurance, households and businesses would “be less confident to invest or take financial risks in vulnerable parts of the country”.
“Access to credit may be reduced, while credit risk for existing loans would rise. Communities would take longer to recover in the aftermath of disasters, and more of the financial burden of recovery would fall on governments and – by extension – taxpayers.
“APRA’s view … is that declining insurance affordability and accessibility in Australia’s north can best be meaningfully and sustainably addressed by tackling the root cause: the high, rising and volatile cost of natural disasters. The most effective way to do this is through greater investment in mitigation to protect homes, businesses and infrastructure from damage.”
The Insurance Council of Australia estimates federal and state governments spend about $100 million to $120 million a year on disaster resilience, less than 4 per cent of what APRA says is needed.
The ICA has consistently called for at least $400 million a year to be spent, as recommended by the Productivity Commission, half of which would come from the federal government and half from the states.
Mr Summerhayes made no direct appeal to federal or state governments for more resilience investment, but he did welcome Treasurer Josh Frydenberg’s foreshadowing of more announcements on disaster and mitigation funding following the release of the bushfire royal commission final report.
The insurance industry – of which Mr Summerhayes was a member as head of Suncorp’s life insurance division before joining APRA – has long called for more funding for natural disaster resilience, and the ICA welcomed the APRA member’s comments.
“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,” ICA chief executive Andrew Hall said.
“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.”
He said the ICA had been working with Treasury to identify areas of high exposure where mitigation projects were needed. “Many schemes are at an advanced stage and only require approvals and funding to go ahead,” he said.
On Tuesday the Palaszczuk government in Queensland promised it would spend $42.5 million building the East Bundaberg Flood Levee if it was re-elected at the end of the month.