A National Disaster Insurance System

It’s What Australia Desperately Needs

Nick Haughain

At the time of writing, the 2019-20 bushfre season has seen over an estimated twenty million hectares burned, with over 1500 buildings destroyed and 29 fatalities. This is one of the worst bushfre seasons Australia has ever seen. In the aftermath of this horrifc disaster, another crisis has emerged. A national crisis of homeowners not having the insurance needed to adequately recover from the bushfres. When communities cannot recover from natural disasters, social cohesion is destroyed, and residents slowly move away never to return.

Australia is one of the few developed nations which predominantly rely upon private insurance markets to recover from natural disasters. This prevents underinsured or uninsured home and business owners from fully recovering from damage caused by natural disasters.

Of the almost 200 homes destroyed in the October 2013 Blue Mountains bushfres, more than 65% were found to be either underinsured or completely

uninsured. According to a December 2017 report by the Victorian government, only an estimated 46% of Victorian households have sufcient insurance to rebuild their homes in the event of a natural disaster. Low insurance coverage rates illustrate a natural disaster insurance system that it is simply not ft for purpose and is failing ordinary Australians.

The 2011 Japan earthquake and tsunami claimed the lives of nearly 16,000 deaths and resulted in $235 billion of economic damage according to the World Bank. Despite this, only 10% of Japanese businesses and 30% of Japanese real estate are covered by earthquake insurance policies. With only 14% to 17% of households being covered by insurance, recovery has become painstakingly expensive and difcult with a 2014 Japanese government report estimating that 267,000 victims were still living in temporary accommodation six years after the earthquake struck.

In comparison, the 2011 Christchurch earthquake caused possibly up to $30 billion worth of economic damage, yet Christchurch’s physical and economic

When communities cannot recover from natural disasters, social cohesion is destroyed, and residents slowly move away never to return.”

recovery was substantially faster. The New Zealand Government’s Earthquake Commission (‘EQC’), the provider of statutory natural disaster insurance, was able to process a substantial number of claims, paying out over $20 billion in payments. With 75% of impacted households being covered under EQC’s earthquake insurance, recovery was signifcantly better when compared to previous earthquakes of similar scale in New Zealand history. Despite high coverage rates, ECQ was heavily criticised for the extremely long time it took to settle outstanding insurance claims with a government report in October 2017 fnding that 2600 unresolved claims still existed out of 470,000 lodged over six years after the Christchurch earthquake struck.

With low natural disaster insurance coverage rates, many victims of natural disasters in Australia are forced to turn to the courts to fnd adequate compensation to rebuild their properties. A lawsuit brought against the Queensland government by nearly 7,000 claimants was settled in the New South Wales Supreme Court in November 2019. Queensland government engineers employed to inspect the Wivenhoe and Somerset dams were found to be negligent, making it the frst successful natural disaster compensation class action in Australian history.

However, a compensation model reliant upon individual class actions will fail to provide adequate compensation in most scenarios. For a class action against a government agency over a natural disaster to succeed, the plaintifs need to establish that the actions of government agencies and ofcials were negligent and led to an exacerbation of the natural disaster's impact. In natural disasters where no or unsubstantial blame cannot be levelled at government agencies, afected victims will not be able to receive compensation through class actions.

‘Stopgap’ approaches like the federal government’s creation of the National Bushfre Recovery Agency with $2 billion of funds to address widespread and the federal government’s introduction of payments to those impacted will not allow homeowners and communities to rebuild. The lack of funding for bushfre recovery from the federal government is insufcient to adequately rebuild destroyed property. Only a national natural disaster insurance scheme can sufciently protect Australian homes and businesses and give adequate compensation to rebuild impacted communities and properties. New Zealand has arguably the world’s best model for natural disaster and its model is appropriate to be introduced into Australia. A national independent statutory body operating under a statute similar to New Zealand’s Earthquake Commission Act 1993 could be created under this model. Under a proposed agency, the Natural Disaster Relief Fund (‘NDRF’) would be able to administer compulsory levies placed on all home insurance policies. Additionally, to address low insurance coverage rates in regional

With low natural disaster insurance coverage rates, many victims of natural disasters in Australia are forced to turn to the courts to fnd adequate compensation to rebuild their properties.”

Australia, areas and communities identifed to be at risk from natural disasters will be sold heavily discounted natural disaster insurance from the NDRF. The proposed agency will administer the National Disaster Relief Fund, which all monies levied will be placed into. The Fund will be invested conservatively in order to be fscally independent of the government. If payouts for natural disasters exceed the available amount of money in the NDRF, the federal government will be required under law to continue to payout with funds to be sourced from consolidated revenue.

Under a model similar to New Zealand’s model for natural disaster, disaster relief payouts will be paid out in accordance with the level of compensation to be in line with the level of damage independently determined by loss adjusters operating at arm’s length to the management of the agency. In order to ensure that the NDRF is administered efectively with appropriate levels of stafng and funding, the NDRF will report directly to the Prime Minister and will be accountable to the Parliament of Australia.

Simply copying New Zealand’s Earthquake Commission without accounting for Australia’s unique weather conditions, natural disaster prevalence and political risk will set the Natural Disaster Relief Fund up for failure. The Natural Disaster Relief Fund needs to work collaboratively with other Commonwealth agencies and with state, territory and local governments to

ensure maximum recovery from natural disasters for afected communities. To ensure efective collaboration amongst the various levels of government, the federal government should push to pass a National Disaster Plan at the Council of Australian Governments (‘COAG’) which would set out a comprehensive natural disaster recovery plan involving all levels of government.

With Australia being one of the harshest environments in the world, and with an increasing prevalence of natural disasters due to climate change, the federal government’s introduction of discounted natural disaster insurance through the creation of the Natural Disaster Relief Fund would allow for property owners and communities to rebuild and regroup for the future. Any continuation of the current patchwork approach to natural disaster compensation across government will simply continue to fail natural disaster victims.

“Simply copying New Zealand’s Earthquake Commission without accounting for Australia’s unique weather conditions, natural disaster prevalence and political risk will set the Natural Disaster Relief Fund up for failure.

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With low natural disaster insurance coverage rates, many victims of natural disasters in Australia are forced to turn to the courts to fnd adequate compensation to rebuild their properties.

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Simply copying New Zealand’s Earthquake Commission without accounting for Australia’s unique weather conditions, natural disaster prevalence and political risk will set the Natural Disaster Relief Fund up for failure. 25,000 hours spent on pro bono in 2017 KWM internal

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