Poll pressures

Poll pressures

Politicians seeking election in the wake of devastating natural catastrophes may finally be heeding calls for resilience spending

By Wendy Pugh

After years of insurers beating the drum, disaster resilience has become an electoral issue as voters prepare to go to the polls in May following a Federal Government term virtually bookended by two of the nation’s worst natural catastrophes.

Insurance affordability and resilience was particularly on the radar in northern Australia, before the recent Queensland and New South Wales floods. Prime Minister Scott Morrison announced a cyclone reinsurance pool last May while visiting the region, as well as $600 million for mitigation under a six-year Preparing Australia Program.

Labor upped the ante in January, committing to spend up to $200 million a year on prevention and resilience, revamping the Emergency Response Fund and creating a Disaster Ready Fund.

Insurers have become even more vocal on resilience this year as bushfires, hailstorms and floods and the expected impacts of a changing climate have given the issue traction.

The Insurance Council of Australia (ICA) released its pre-election policy platform in February, titled Building a More Resilient Australia. The policies include a call for federal funding of at least $200 million a year over the next five years, matched by states and territories for a total $2 billion commitment.

The document notes “welcome investments” including the $600 million program announced by Mr Morrison and $40 million to make strata buildings more resilient, but says more is required.

“In an election year our simple message is this: in the face of worsening extreme weather the next Australian Government must boost investment in stronger homes and the local infrastructure that make communities more resilient,” Chief Executive Andrew Hall says.

“This means subsidies to improve the resilience of the nation’s homes and businesses to cyclone, flood and bushfire, as well as projects that protect the community, like levees, floodways and prescribed burning.”

Insurers have paid out more than $11 billion for natural disaster claims since late 2019 and the cost of the recent floods is still climbing. The total includes $2.3 billion for the 2019/20 Black Summer bushfires, $1.1 billion for the Halloween hailstorms and around $760 million for storms in Victoria and South Australia late last year.

Clear message: flood victims and insurers need more from the next government.

Credit: IAG

Shortly after the ICA released its policy document, torrential rainfall began in Queensland and NSW, triggering the flooding catastrophe. Claims had reached an estimated $2.4 billion by the start of this month.

The Federal Government’s final budget before the election, delivered on March 29 against the floods backdrop, highlights immediate responses, while releasing an additional $150 million for recovery and post-disaster resilience measures from the Emergency Relief Fund for 2022-23, targeted at the hard-hit regions. Other natural peril preparation measures are also included.

Mr Hall says spending on flood-affected regions is welcome, but dozens of communities in Australia remain exposed to perils like cyclones and require similar assistance to “uplift their mitigation”.

The Productivity Commission says 97% of disaster funding is spent after a catastrophe and just 3% spent on measures beforehand.

“In the lead-up to the election in coming weeks it is incumbent upon the Government to not only assist with recovery, but announce further investments to better protect communities from the impacts of extreme weather,” Mr Hall says.

Labor Party Assistant Financial Services spokesman Matt Thistlethwaite tells Insurance News the party is targeting emissions reduction and resilience measures to address climate change and extreme weather impacts.

“We see it as a problem that needs a solution, and we look forward to working with the insurance industry to deliver that solution by reducing Australia’s emissions and protecting communities and households through mitigation,” he says.

Projects including flood levees, sea walls, cyclone shelters and evacuation centres, supported by a Disaster Ready Fund, will assist with spiralling premiums in disaster-prone regions by reducing the risk of expensive damage to homes and businesses, he says.

Insurance News put questions to both sides of politics on policy positions ahead of the election. The office of Assistant Treasurer Michael Sukkar declined to respond directly, while pointing to comments already made, particularly on the cyclone pool.

The reinsurance pool bill passed the Senate during its final sitting day before the election as debate continued on whether promised savings would be achieved, the prospect of extending it to flood and the need for mitigation.

“Explicitly in its mandate, we have put in place a process whereby any excess funds, any profits, should be diverted into mitigation projects,” Mr Sukkar says. “It becomes an almost virtuous cycle of savings from the reinsurance pool get put into fortifying those communities even further.”

Labor voted for the bill, rather than delaying it for amendments, but says it would consider expanding the scheme to include non-cyclone-related flooding as part of a later review.

“In the wake of the most recent flooding, the cost of flood insurance is going to go up and up and beyond the reach of many households, and small businesses,” Mr Thistlethwaite says. “There’s a clear justification, particularly based on what we’ve seen over the last couple of weeks, for the Government to look to extend this scheme to cover flooding, and hopefully reduce those costs for consumers.”

ICA says a reinsurance pool is only one “piece of the puzzle” and the floods show the urgent need for investment in measures to better protect homes and communities before disasters happen.

The council’s policy platform calls for a national review of land use planning to prevent home building in high-risk locations and seeks national building code updates so resilience is central alongside health and safety objectives.

Mr Thistlethwaite told Insurance News Labor would have more to say on those issues “in coming weeks”.

ICA’s 12-point policy agenda also seeks Privacy Act amendments to allow “prudent” data sharing between insurers and government agencies to assist with disaster planning, collaboration on cyber risks, a national review of tort law, and changes so legal test cases could be brought in a similar way to UK arrangements.

The document reiterates longstanding demands for states and territories to abolish duties, levies and charges on insurance, as the affordability debate and inadequate cover concerns underscore the issue.

The Howard Government’s removal of various state taxes and charges with the introduction of the goods and services tax provides an example of what can be accomplished, ICA says.

“Given the public policy benefits of adequate insurance cover there is a clear role for the Commonwealth to lead by providing incentives for states and territories to undertake reform in this area, as it has done with economic reforms in the past,” Mr Hall says.

Mr Thistlethwaite says Labor will “work with the states to ensure the insurance system is as efficient and effective as possible”. Coalition politicians have put pressure on the Queensland state Labor government on the issue but haven’t proposed a national strategy.

Disaster preparedness may be more likely to feature in party statements as politicians campaigning across the country hear from people who have experienced catastrophes. Many are seeking answers from their representatives around protections for their homes and communities as floodwaters recede.

“Our sense is that the conversation has changed in the past few months and weeks and that there is a lot more receptiveness to this message about investing more in resilience and mitigation,” ICA General Manager Public Affairs Mathew Jones told a Senate committee last month.

“I think Australians have seen this movie before and they want a different ending.”