A levy around a house in St George, Queensland.

By Cameron Jewell

28 August 2013 — When developers started calling insurers worried about flood risk and insurance premiums for their clients, it was yet another signal that the industry had to make its own adaptation to climate change. Today, The Australian Resilience Taskforce is working out how to reverse the trend on uninsurable properties, create lower premiums and recognise and reward resilience planning, especially by local government authorities.

The Climate Commission in June released a report called The Angry Summer. It found Australia’s 2012/13 summer was the hottest on record, punctuated by extreme and catastrophic bushfires, extreme rainfall and severe floods.

The cost of natural disasters is rising as climate change impacts begin to be felt and population grows, and estimates suggest what now costs Australia $6.3 billion a year could rise to around $23 billion by 2050.

A Senate committee report released this month, Recent trends in and preparedness for extreme weather events, made recommendations on how Australia could deal with these increasing extreme weather events.

Among its recommendations were that:

  • credible, reliable flood mapping and other information be produced and shared to better inform landowners of extreme weather risks
  • this information be used to inform land use planning laws
  • building codes incorporate mitigation measures that take into account foreseeable risks from extreme weather
  • that disincentives to insurance be removed

The report says it is critical to be aware of the influence of climate change on extreme weather so communities, emergency services and governments could prepare for the risk of increasingly severe and frequent extreme weather.

Insurance Australia Group welcomed the move, saying that creating resilient communities was a national priority.

“This report is another voice that strongly says we need a comprehensive and more sustainable approach to managing natural disasters in Australia to keep people safe,” said IAG chief executive Mike Wilkins.

“Every Australian is impacted by natural disasters and extreme weather. Whether it be through personal devastation in losing loved ones or property, whether it be through billions of their taxpayer dollars spent on recovery, the creation of special flood levies, or through higher insurance premiums, we all pay the price when we fail to make where we live as safe as possible.”

IAG is part of The Australian Business Roundtable for Disaster Resilience and Safer Communities, which was formed in 2012 after a spate of floods, storms and bushfires, and also includes the chief executives of Australian Red Cross, Investa, Munich Re, Optus and Westpac.

The roundtable’s white paper, released in June, says that each year the Australian government spends around $560 million on post-disaster relief and recovery compared with $50 million on pre-disaster resilience.

It shows that increased pre-disaster measures, including improving house resilience and upgrading infrastructure, could reduce natural disaster costs by 50 per cent by 2050.

Another key player in resilience is the Insurance Council of Australia, the representative body for the insurance industry. The group has funded work in the past to help tackle credit card fraud and car theft, and now it has turned its attention to natural disaster, with the Australian Resilience Taskforce.

The taskforce aims to increase the resilience of the built environment to extreme weather by connecting government and industry through practical tools and support.

Karl Sullivan, general manager policy risk and disaster at Insurance Council of Australia, says it is important that collaboration between government and industry occurs in the resilience space.

Karl Sullivan

“We’ve been arguing for a number of years that things need to change in the built environment so that it remains insurable into the future,” he told The Fifth Estate.

Examples of uninsurable land abound in Australia. The most recent high-profile cases have been in Emerald and Roma in southeast Queensland.

In May of last year Queensland’s largest insurer Suncorp said it could no longer offer new premiums to the towns ravaged by the 2011 floods.

It said it would “reassess premiums in high risk areas” if flood mitigation investment was made, and in February this year said it would review risk pricing in Emerald after the government committed $5 million for flood mitigation work.

Not offering insurance is the last thing the insurance industry wants, so the crux of resilience, for both the insurance industry and properties affected by extreme weather, is about survival.

Sullivan said people were starting to hurt at the hip regarding their premiums, and affordability was also causing insurance not to be taken up.

“Pricing has got to the point where it is a significant cost of living pressure,” he says. “People are now really thinking about it when buying, and what their bill is going to be like.”

In response, the Australia Resilience Taskforce is working on a number of strategies to improve the situation.

To insure or not insure

There are three issues that need to be factored in when thinking about insuring a property, Sullivan says: how resilient is the building, how appropriate is the use of land and what hazard mitigation strategies are in place?

It’s then about what the residual risk is after the three sides of triangle are put together, he says.

Mid-western Queensland is a good example of where things had gone wrong: a very flood prone location with a large stock of inappropriately built housing that floods repeatedly because of a lack of flood mitigation.

Communication between governments of all levels and the insurance industry has been poor in some regions, too, leading to uncertainty, which, for the insurance industry, equates to higher premiums.

“Where there’s uncertainty, there’s often a big premium,” Sullivan says. “The uncertainty around risk leads to a scenario where the premiums are too high.”

An example of where information hadn’t been shared, Sullivan says, was in Narrabri in the north of NSW, which along with many towns had been in the media regarding claims of overcharging.

Sullivan said he spoke to the mayor of Narrabri to see what he could do to help. The mayor there was incensed that people behind the flood levy were having to pay as much as the people who weren’t protected by it.

A levy protects properties in Charleville, Queensland.

Councils need better communication

Sullivan said he looked into it and found insurers didn’t even know a flood levy had been built. The release of data by councils hadn’t occurred, something Sullivan said was a fundamental flaw in how the system was operating.

“By and large, most councils do get it right,” says Sullivan, but inconsistencies across councils can complicate the matter.

Councils providing more detail to the insurance industry can help. And that’s where the work of the Australian Resilience Taskforce comes in.

They’re working on a Property Resilience and Exposure Program – or PREP – which is currently being trialled in a hazard-prone area of NSW.

“Essentially it’s a program that’s going to operate between local governments that perceive they have an affordability problem – which is all of them – and the insurance industry,” Sullivan says.

Using the taskforce’s Building Resilience Rating Tool (see our article on Edge Environment), Building Resilience Knowledge Database (a database of how building materials respond under extreme conditions), surveyed building data and hazard overlay on land parcels, a property resilience overlay is created, much like a flood overlay, that shows how resilient buildings in certain areas are.

The output goes back to the local council to show them where they’ve produced insurable buildings. The benefit for them is that they are able to identify well-performing development controls, can quantify the value of existing mitigation, and can also see where mitigation priorities lie.

The insurance industry gets a better picture of local development control, a reduction in hazard uncertainty, and acknowledgement of existing mitigation strategies and working development controls.

And “it sorts out ‘Johnny in the middle’ too”, says Sullivan, who may be provided with more certainty and cheaper premiums.

“A key problem is that everybody wants to mitigate, but everyone wants to do it in different ways,” says Sullivan. “It’s a haphazard approach, and there’s no common measuring.”

What the taskforce is attempting to do is create a common approach. It’s “industry’s attempt to get a common measuring stick”, says Sullivan.

The resilience mapping elucidates the difference between areas prone to natural disaster and those that are resilient to disaster. Sullivan says there’s a big difference between a house in a fire-prone area resilient to bushfire compared with one that isn’t resilient, and that it needs to be reflected in insurance premiums.

He says the resilience heat mapping also allows councils to speak the same language to government, allowing funding to be directed in the most cost-effective way.

“The time is really right for it,” says Sullivan. “Pricing has got to the point where it is a significant cost of living pressure. People are now really thinking about it when buying, and what their bill is going to be like.”

And its not just home owners who are paying attention.

Developers are asking questions too

“For the first time ever we’re getting calls from developers – who’ve never really spoken to us before – saying, ‘I’m about to develop this land. I have to lift houses up to the one-in-100-year flood level but I’m getting feedback this is not enough.’ They’ve never ever thought in those terms before. But the price signal is so loud now.

“That’s developers adapting to extreme weather. And it’s a very, very positive development. If we can start to help them with resilience heat mapping, we end up with an environment far less brittle into the future.”

Sustainability isn’t only in regards to the buildings being built or insured, though. For the insurance industry, getting this information is vital to the long-term sustainability of their industry.

“We want to sell policies at a price people can afford and that they’ll buy next year,” says Sullivan. “We can’t be charging Nanna so much money it’s unsustainable for her. It’s unsustainable for the insurance industry.”

He said there were cases of people getting presented with premiums that were extreme. One example he heard of was a renewal notice jumping from $1000 to $24,000, though in that case the customer literally lived next to a river.

The same issue is being seen around the world. In the US, updated flood maps – which must be adopted to be part of a National Flood Insurance Program – have seen the price of premiums skyrocket in US municipalities like Greenwich, Connecticut.

Homeowners are furious, but there are supporters of the updated maps, which have revised predictions of storm surges and flood levels.

“By subsidising risk, we are encouraging people to build in areas they shouldn’t build and putting that on the taxpayers,” R Street Institute’s R J Lehmann told Bloomberg. “It is a wrenching process, but as we see sea levels rise and as we see global warming, we are going to see more of this.”

What the future holds

Sullivan hopes to have the taskforce’s resilience tool being used by a significant number of councils in flood-prone areas within five years.

He said sophisticated insurers would also be looking at the tool closely, with the new data allowing more competitive pricing.

He says the Insurance Council of Australia is taking the matter very seriously, with the project having taken “a very significant proportion” of the council budget over the last five years.

“The only tool that we have is pricing,” Sullivan says, and by addressing building resilience, appropriate land use and hazard mitigation strategies, he thinks the best outcomes for the insurance industry, government and policy holders can be found.

“We all want to live in better homes, but if you’re able to do that and pay less insurance it’s a no brainer.”

The Building Resilience Rating Tool is due to go live in September.