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Prevention better than cure in natural disasters

06 Jun 2017

Attributed to Steve Johnston, Suncorp CFO

By the time ex-Tropical Cyclone Debbie finished with New Zealand she had trekked 5,000 kilometres across two continents. In her wake, Debbie, like many others before her, devastated local communities and cities, displaced families and resulted in loss of life.

As communities count the costs, governments restore services and infrastructure, and families make sense of what’s happened to them, the conversation inevitably turns to climate change and the increased severity with which Mother Nature vents her fury.

Yet amid the important debate and discussion about climate change, and its impact on future generations, there is one topic that is conveniently avoided – mitigation. As the current custodians of the planet we have an obligation to those that follow to do our utmost to protect and preserve the environment, but we also have a responsibility to those that inhabit the earth today. It’s today’s generation that has been forgotten and the price being paid is increasing.

Why is this so? As a rule, our Governments, with the support of the private sector and not-for-profits, do a reasonable job in dealing with the consequences of natural disasters, at least in the immediate aftermath. Roads and bridges are rebuilt; homes are repaired and life goes on – or so it appears. But the flurry of activity that accompanies the rebuilding disguises the true societal cost of these catastrophes and their impact on our national economy.  

The inescapable fact is that much of our private infrastructure is simply unfit or ill prepared for the environments it is increasingly being subjected to. Years of lax planning has resulted in too many homes, businesses and communities being built in harm’s way, while too few dollars are being spent on mitigating the threats.

It’s not as if the issue has not been discussed or debated. Australia has had no less than a dozen inquiries into this issue, in one form or another, over the past six years. The Productivity Commission highlighted more than two years ago that 97 percent of disaster funding is spent after a disaster, cleaning up and rebuilding. Just three per cent of this funding is spent on mitigating and preventing disasters.

Over the 12-year period to 2015 that’s $13 billion compared to $600 million. You don’t have to be an insurance expert or climate scientist to know that this imbalance is clearly unsustainable. Indeed, the Commission itself put it best: “Governments overinvest in post-disaster reconstruction and underinvest in mitigation that would limit the impact of natural disasters in the first place. As such, natural disaster costs have become a growing, unfunded liability for governments”.

The latest means of avoiding a meaningful investment in mitigation emerged in the form of a mooted government-backed reinsurance pool or insurance mutual in a bid to reduce the cost of insurance for residents in the north. A budgetary measure, providing significant funding to the ACCC to monitor insurance pricing in the north over the next four years, also fails to address the real issue of mitigation.

The Turnbull Government, to its credit, has resisted the proposal that would see the Commonwealth re-emerge as an insurer of private assets but neither of these measures help to better equip the homes and businesses in the region to deal with the devastation and destruction that cyclones bring.

The Northern Australian Insurance Premiums Taskforce Report charged with investigating the merits of these proposals found mitigation to reduce the risk of damage from cyclones was the ‘only way to reduce premiums on a sustainable basis’. Further, it found government would be exposing taxpayers to unpredictable liabilities if it went down the path of introducing a government-backed reinsurance pool or insurance mutual.

The reasons for mitigation have been brought to life in stories from the outback towns Roma and St George where residents have received a significant reduction in premiums since levees were built to protect them from flooding. The economic benefits that flow to these towns can be considerable – worth up to five times the cost of the levee.

Managing risk and resilience through the delivery of transparent information, stronger buildings, smarter planning and investment in disaster mitigation is crucial to a sustainable economy and a stronger nation.

Suncorp’s work in conjunction with James Cook University has found that some simple, low-cost retrofits will pay for themselves after only one major cyclone. Through our Protecting the North strategy, we have reduced the premiums of more than 30,000 customers who have reported roof upgrades, covered windows, stronger doors and property maintenance since we launched the Cyclone Resilience Benefit last year.

Another Suncorp-commissioned analysis found that a $2.5 billion mitigation program invested over 10 years can bring a $6.2 billion increase in GDP.

Australia is playing catch up on disaster mitigation. Effective mitigation protects vulnerable communities, safeguards property, builds stronger economies and, ultimately, reduces the cost of insurance. But it takes insurers, communities and governments to come together and act on the indisputable principle that prevention is always better than a cure. Let’s start thinking about the current generation.

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