The banking regulator says governments must better prepare flood and cyclone-prone communities rather than focusing on the clean-up in order to keep a lid on insurance costs for northern Australia.
Disasters in recent years have pushed insurance costs much higher in northern parts than the rest of the country, and the Australian Prudential Regulation Authority is among those concerned that households and businesses will be unable to afford cover amid the expected impact of climate change.
APRA executive director Geoff Summerhayes, due to speak at an insurance hazards conference in Queensland on Wednesday, says the only sustainable way to reduce premiums is to lower the risk of property damage, meaning state and federal governments need to consider pre-emptive infrastructure work, risk mapping, land rezoning and robust building codes.
“Hundreds of millions of dollars each year are spent on disaster funding but about 97 per cent goes towards clean-up and recovery, with only three per cent directed to mitigation and prevention,” Mr Summerhayes said.
“All levels of government, working with insurers and other stakeholders, can help to protect vulnerable communities by investing in mitigation such as flood levies and sea walls.”
Mr Summerhayes cited the example of Roma in southern Queensland where, after the 2012 floods, insurance premiums fell by 50 per cent to 90 per cent following the completion of flood mitigation infrastructure.
The ICA applauded APRA’s stance on disaster mitigation and urged the federal government to adopt a Productivity Commission recommendation that it invest at least $200 million a year in mitigation and resilience projects, to be matched by the states and territories.
“Lowering the risk of property damage is the only sustainable way to lower insurance premiums,” ICA chief executive Rob Whelan said.
“Insurers price their policies according to risk, with policyholders at greater risk paying commensurately higher costs.
“Rising insurance premiums in northern Australia are therefore a symptom of a deeper problem, which is the growing threat these communities face from natural disasters.”
In its submission to the Northern Australia Insurance Inquiry second update report, APRA noted insurance losses for three natural catastrophes declared by the Insurance Council of Australia during the 2018-19 summer passed $2.2 billion.