Insurers call for disaster mitigation increase

IAG and Suncorp have called on the government to commit to an annual $200 million spend on mitigation.

The damage bill from cyclone Debbie is expected to be more than $1 billion.

The federal government rejected a Productivity Commission proposal to increase natural disaster mitigation spending at the same time it attempted to pressure state governments to accept a drastic cut to recovery spending.

Australia’s biggest insurers want the government to revisit the plans to dramatically increase natural disaster prevention spending, which the commission believes will save billions in post-catastrophe clean-ups.

As the damage wrought by Cyclone Debbie continues to mount, Insurance Australia Group and Suncorp have hit back at politicians’ accusations companies are “stingy” with claims, and have called on the government to adopt the recommendation it commit to an annual $200 million spend on mitigation. The proposal, part of the Productivity Commission Inquiry into Natural Disaster Funding ­Arrangements, was rejected by the government two days before Christmas last year, after it sat on the report for two years.

“There is overwhelming evidence that shows the economic and social impact savings which upfront mitigation funding could achieve and this is being ignored,” IAG chief executive Peter Harmer told The Weekend Australian.

“The government response in late December …. was disappointing and did not go far enough, particularly in the area of funding for disaster resilience and mitigation.

“We have been advocating for some time that there needs to be a different approach to natural disaster funding, with more focus on mitigation, to avoid some of the impacts we are seeing.”

As of yesterday, insurers had received nearly 47,000 claims from Queensland and NSW policy­holders for insured losses stretching to $413m. It is estimated losses will break $1 billion.

The federal government invests about $50m a year on adaptation funding but spends more than $500m on average on post-disaster relief and recovery.

The Australian Business Roundtable for Disaster Resilience said spending $250m a year on preventive infrastructure, such as flood levees, would slash recovery costs in half and generate savings of more than $12bn by 2050.

“The recommendations of the review included significantly reducing recovery funding provided to states, while increasing mitigation funding over time,” a government spokeswoman said.

“We took this recommendation to the states, but significant concerns were raised.

“We are now working with all jurisdictions to ensure we strike the right balance between recovery and mitigation.”

Currently, 97 per cent of disaster funding is spent on recovery and only 3 per cent on mitigation.

This year, the Australian Prudential Regulation Authority for the first time said climate change represented a risk to the financial system, and said company directors should disclose risks their businesses faced.

Helicopters sent to rescue ­people in the Queensland town of Roma, which suffered three major floods in three consecutive years, cost taxpayers about $20m during each flood. A $25m levee now means 90 per cent of Roma homes face zero flood risk.

Lismore Mayor Isaac Smith, whose region has been hit by devastating floods, said the town’s levee already saved tens of millions of dollars and “definitely paid its value back”, but defended a decision to build a shorter than recommended structure saying: “To be honest nobody wants to live next to a Berlin Wall.”

Suncorp customer chief executive Gary Dransfield said: “Government, industry and the community need to work together to improve the resilience of ­communities against natural ­disasters.”

Mr Dransfield said there was now an opportunity for the government to address mitigation funding in response to a report on northern Australian insurance premiums. “Suncorp joins the rest of industry in awaiting the government’s response to the taskforce’s findings, which argued in favour of a shift in the government’s approach to natural disaster funding towards mitigation,” he told The Weekend Australian.

In its pre-budget submission, the Insurance Council of Australia has urged the government to rethink its objection to lifting mitigation spending fivefold.

“It’s about spending more money before an event rather than spending more money after an event,” ICA chief executive Rob Whelan said.

A year of natural disasters this week sparked an earnings downgrade at IAG.

While Malcolm Turnbull and Bill Shorten both put the insurance sector on notice over its reaction to Cyclone Debbie, Queensland federal Nationals MP George Christensen, whose seat of ­Dawson covers the area hardest hit by the cyclone, said he would be watching to “make sure there is a timely, reasonable, non-­bureaucratic, non-stingy approach to people making insurance claims”.

The Prime Minister said: “I think one of the lessons from this is that as we rebuild infra­structure we have to make sure that it is more flood proof and more resilient than the infra­structure that has been destroyed and is being replaced.”