This paper was prepared by Treasury in response to a request made by the Royal Commission.
Natural disasters, including bushfire, floods, storms, cyclones and earthquakes are an enduring fact of life in Australia. Responding to natural disasters, including the provision of relief and recovery assistance to disaster affected communities, is primarily the responsibility of State and Territory Governments. However, in recognition of the significant cost of natural disasters, the Australian Government established the Natural Disaster Relief and Recovery Arrangements (NDRRA) to alleviate the financial burden on the States and Territories to facilitate the early provision of assistance to disaster affected communities.
The NDRRA operates according to the principle that assistance is not intended to replace the need for appropriate self-help strategies, such as acquiring insurance or undertaking appropriate disaster mitigation. Hence the private insurance market plays a critical role in protecting individuals and communities against loss caused by natural disasters.
The Australian Government has, over the past decade, contributed over $10.5 billion under the NDRRA to support recovery efforts nationally. Following the widespread flooding of 2010-11, the then Australian Government introduced a temporary flood and cyclone reconstruction levy to help meet the extraordinary amount of funding paid to the States and Territories under the NDRRA and other arrangements in respect of recovery from floods and cyclones.
The issue of natural disaster insurance has been examined extensively in a series of inquiries in recent years. The matters that have been subject to scrutiny fall into two broad (and somewhat overlapping) categories:
- Availability and affordability of natural disaster insurance, and the reasons for non-insurance and underinsurance, and associated proposals for government subsidisation or other intervention in markets.
- Issues around conduct of insurers and performance of insurance markets. This includes matters going to the handling of disaster related claims and the effectiveness of the industry code of practice, disclosure of and reliance on policy exclusions, and the legitimacy of pricing of natural disaster insurance (including the level of competition) in some locations.