The Insurance Council of Australia (ICA) has lent its weight to a call for more investment in natural disaster mitigation, made recently by the Australian Prudential Regulation Authority (APRA).
The regulator believes that more funding in this area will improve the affordability and availability of general insurance in Northern Australia.
“The ICA urges the Federal Government to heed APRA’s guidance on mitigation,” said Rob Whelan, Chief Executive Officer (CEO) of the ICA.
“It should adopt the 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.”
APRA Executive Board Member Geoff Summerhayes argues that only sustainable way to reduce premiums in Australia is to lower the risk of property damage.
“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, risk mapping and more robust building codes,” he said. “Crucially, lowering the risks faced by policyholders typically leads to insurance premiums falling.”
“Ongoing access to affordable general insurance is essential for the economic well-being of these communities; without it, households and businesses in Australia’s north will struggle to recover from financial loss or gain access to credit.”
Whelan further stated: “Today’s announcement is a timely development in the debate about protecting communities from natural disasters and the flow-on effect this will have on improving the affordability and availability of insurance.”
“The insurance industry strongly supports APRA’s call for an informed debate about the best way to fund mitigation and adaptation, and reverse the current imbalance between disaster relief funding and prevention.”
The ICA noted that only 3% of disaster funding currently goes towards prevention and 97% towards recovery, adding that it had been urging governments to invest in permanent mitigation for many years now.
“APRA correctly identifies that lowering the risk of property damage is the only sustainable way to lower insurance premiums,” Whelan explained. “Risk-based pricing means property owners at greater risk pay higher premiums, and the ICA agrees insurance prices in northern Australia are a symptom of a much deeper problem.”
“Mitigation and resilience projects should be treated by governments as nation-building infrastructure that protect communities, generate jobs and improve regional economies.”
Whelan also said that most insurers were aware of many examples where mitigation investments had protected communities for generations, and where the long-term benefits have far outweighed the initial costs of the project.
For example, he said, a recently completed flood mitigation in Roma has resulted in greater economic certainty for the town while also delivering up to 90% reduction in premiums for the most-exposed properties.
