Natural disasters and natural disaster insurance: an Australian perspective

Disasters Household finance Insurance Australia

Recent natural disasters in Australia have prompted some calls for the establishment of national natural disaster insurance program to address apparent problems of availability and affordability in the existing private insurance market. We first examine the incidence and impact of natural Disasters during a recent period and find that although there is strong evidence of an upward trend in the costs of overall loss, particularly among the few very severe outlier events, there is much less suggestion from the trends in the insurance data on the number of events.

However, the expectation is that two of the natural disaster types most relevant to Australia, namely, flood and bushfires, will increase in frequency with climate change, intensified by socioeconomic development and population growth, especially in exposed coastal and riverine settlements and regions and in large densely populated urban areas. Based on four recent extreme natural disaster events as illustrative cases, areas of particular concern with property insurance are that insured losses are only a relatively small percentage of total costs, and that while property insurance is quite widespread in Australia, the Levels of noninsurance and underinsurance, as well as cover for particular sources of damage may be inappropriate. Apart from availability, other concerns are evident with affordability, failures in risk disclosure by government, the unclear disclosure of coverage, and noninsurance resulting from perceptions of government as a provider of cover of last resort. However, the recommendations from recent natural disaster reports and inquiries mostly concern mitigation, prediction, emergency services response, land use and planning controls and building regulations, and disaster relief and recovery, with relatively few concerning any deficiencies in existing private insurance markets.

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