Insurers urge government to invest in flood risk mitigation

The country’s peak insurance and actuarial bodies have called for better mapping of flood-prone areas and a focus on ways to mitigate flood risk as better ways to price residential flood insurance policies.

The calls come just days before the July 14 deadline for submissions to the government’s National Disaster Insurance Review (NDIR).

In its submission, the Insurance Council of Australia (ICA) will push for more government and local council funding to implement risk-mitigation strategies.

As an example of a successful strategy, the ICA points to a three-kilometre long, 11-metre high levy wall built by the Lismore City Council along the banks of Wilsons River in 2005. Costing $19 million, it was jointly funded by federal, state and local governments.

According to ICA chief executive Robert Whelan, the wall saved Lismore an estimated $15 million in damages from floods in January this year.

“Mitigation has taken a back seat because it's the hardest and most difficult thing to implement and it will ultimately be expensive. But it's also the most important,” Whelan said at a July 6 seminar in response to NDIR proposals.

In June, Brisbane architect Dion Seminara designed the winning entry for the LJ Hooker Flood Home Design Competition – a house built for less than $200,000 and raised above the ground to allow the water to flow through.

The Institute of Actuaries of Australia (IAA) has called for better flood mapping data for flood-prone areas in addition to state-funded mitigation programs.

“Insurance is not the answer to this – it doesn’t provide a long-term solution to the problems created by natural disasters,” said Daniel Smith, convener of the IAA’s National Disaster Committee at the same seminar.

Risk mitigation is a key tenant of the National Disaster Insurance Review’s guiding principles, announced by assistant treasurer Bill Shorten on March 4, 2011. The review is headed by former APRA board member John Townbridge.

“Risk mitigation by individuals and governments is a key objective. The context is clear: there need to be incentives on all parties to manage, limit or mitigate their risks.

“Also it is evident that affordability of insurance is a function of the quality and effectiveness of risk mitigation,” Townbridge said in a speech to the IAA Biennial Convention in April.

The other guiding principles of the review are that government intervention in insurance markets is justifiable only where affordable insurance is not available and that individuals and businesses should be encouraged to insure themselves.

The review will also examine whether a relationship exists between disaster mitigation measures and the availability and affordability of insurance and consider whether it would be worthwhile to establish a natural disaster fund specifically to support the rebuilding of public infrastructure following a disaster.

The review was instigated in the wake of the Queensland and Victoria floods, when numerous flood victims did not have enough cover, or had no cover at all.

The floods also resulted in a far higher proportion of insurance disputes than any other natural disaster being referred to the Financial Ombudsman Service.

The review panel will provide a final report setting out its recommendations to the Assistant Treasurer by the end of September.