Australia invests $100 million in flood mitigation infrastructure

Australia Prime Minister Julia Gillard announced late last week that the federal government will invest $100 million over two years into flood mitigation projects to help reduce flood risk and bring about reductions in insurance premiums.

The National Insurance Affordability Initiative will invest $50 million each of the two years in targeted flood and other natural disaster mitigation measures, as well as establish the National Insurance Affordability Council, notes a Feb. 28 press release. The council will be charged with the following:

• managing the national coordination of flood risk management;
• making recommendations to the government on flood and other natural disaster mitigation projects; and
• undertaking other functions directed at reducing natural disaster insurance premiums.

Among the three priority areas for the council – work on which will begin immediately – will be a $7 million contribution to building the Roma levee and $10 million to upgrade flood defences in Ipswich.

Affordability of flood cover in flood-prone areas remains a problem, the government reports, adding that minimizing damage from flood and other natural disasters is the only sustainable way to reduce insurance premiums over time. For example, average insurance premiums in Roma are approximately $3,000 (Australian dollars), almost triple the approximately $1,200 for comparable premiums in nearby Chareville, which has a flood levee.

Beyond reducing private insurance premiums, the government notes the initiative has the potential to save expenditure on disaster recovery across all levels of government. Over the last four years, government expenditure on natural disaster recovery has amounted to more than $6 billion, the statement adds.

“Rather than have taxpayers cross-subsidize insurance premiums for those in areas of high risk, this initiative will identify and supplement the funding of mitigation works that will have a real impact in terms of lowering risk and achieving sustainable reduction of insurance premiums in areas exposed to high risk,” the government adds.

The funding was welcomed by Rob Whelan, CEO of the Insurance Council of Australia (ICA), who called it a significant financial step towards protecting the viability and sustainability of many flood-prone communities.

The investment “will ensure that at-risk Australian communities will be better protected in the future from the devastating effects of floods,” Whelan says.

The recent floods in Queensland and NSW caused by ex-tropical cyclone Oswald has caused insurance losses of more than $661 million, he reports, with floods in the past decade causing almost $4.5 billion in insured losses across the country.

The ICA also welcomed a further study to be undertaken by the Australian Government Actuary on strata insurance pricing across Australia, which will provide a benchmark to better inform policyholders on how insurance premiums directly relate to risk.