Insured losses don’t give true picture of natural disasters

Insured losses are an inappropriate method for assessing the damage from natural disasters, a royal commission has heard.

Ian Livingston and son Sydney, 6, among the ruins of their home, lost to bushfires in Cobargo. Picture: Getty Images

Insured losses are an inappropriate method for assessing the damage from natural disasters, said Sharanjit Paddam, a fellow of Actuaries Institute of Australia, as the first day of the royal commission illustrates the carnage of the Black Summer bushfires.

Speaking at the Royal Commission into National Natural Disaster Arrangements, Mr Paddam said insured losses were too narrow of a scope to understand the broad array of damage that ­occurred from natural disasters.

Using the Canberra hailstorm in January as an example, Mr Paddam said, from an insurance portfolio perspective, the hail damage was similar to the insurance losses from the 3000 homes lost in the bushfires.

“As an actuary, I would say it would be wrong to focus on natural disasters in terms of insured losses,” Mr Paddam said.

“They have far broader impacts, and insurance is almost the piece at the end that tries to financially compensate people. But it’s a suboptimal outcome because people’s lives, even if they’re insured to the full extent of the damage, are adversely affected by these natural disasters.”

The other witnesses at the afternoon’s hearing — Mark Leplastrier from Insurance Australia Group and Ryan Crompton from Risk Frontiers — were asked to present to the commission research undertaken by their organisations, along with assessing the state of natural disaster data in Australia.

Using research based on satellite imagery, Dr Crompton outlined the catastrophic natural damage. The total area burnt by the Black Summer bushfires were the largest on record, the damage in NSW more than three times larger than any other bushfire.

Dr Crompton also said the insured losses from the bushfires were likely to be at the lower end of estimates, as they only accounted for housing damage while omitting non-housing buildings and wider economic ­activity.

Citing research undertaken by IAG, Mr Leplastrier, the executive manager of natural perils, said bushfires were “one of the fastest-growing climate risks facing ­Australia”.

In response to a question posed by Dominique Hogan-Doran SC, Mr Leplastrier spoke to research titled At What Cost?, which illustrates the economic threat of natural disasters.

Local government areas with high and extreme risk of bushfire generated $175bn and are home to 2.2 million ­people.

However, Mr Leplastrier also outlined the increasing threat of severe cyclones, which are projected to move further south and probably hit southeast Queensland and northern NSW, placing more of the population at risk.