15 July 2014
Matthew Cranston
The Australian Dairyfarmer
INSURANCE Council of Australia president Mark Milliner has warned the expected boom in insurance and investment in developing Australia’s north will never happen unless governments make a front-end investment in resilience and mitigation.
“Northern Australia is in danger of being left behind the rest of Australia economically unless risk and resilience are addressed,” Mr Milliner said.
“Most business can see the economic opportunity that exists in the far north. However, risk and the cost of accepting that risk weigh heavy when considering commercial, tourism and infrastructure developments.”
Mr Milliner, who is also chief executive of insurance at Suncorp, said that because there had been such little work done investing in mitigation in areas such as the tropics, where tourism assets are held, scarce new insurance cover had been provided.
“While we are seeing increased insurance competition in northern Australia, the lack of quality resilience data and investment has led to some insurers solely focusing on low-risk customers,” Mr Milliner said.
Mr Milliner’s comments come as the financial services and natural disaster funding inquiries are due to release findings.
The north of Australia has become a major area of interest, with a federal government green paper on Developing Northern Australia released last month, a white paper on the same topic to be finished next year, a Northern Australian Advisory Group established and a Northern Development Summit having taken place last month organised by the Australian Davos Connection.
A former ambassador to China, Geoff Raby, said last month there was a once-in-a-generation chance to develop Australia’s north in the context of massive geopolitical shifts in the region.
Australia’s richest person, Gina Rinehart, has also backed major development of the north, saying it “has vast potential as a food producer”.
A new KPMG report commissioned by Suncorp for the financial service and natural disaster funding inquiries has found that “a program of structured mitigation has significant upside and could be of demonstrated benefit where it is targeted to high risk areas”.
KPMG modelled the different economic costs of a one-in-10-year event under three different approaches.
It found that under the existing approach, the economic cost of a one-in ten-year catastrophe would be $12.3 billion. Under a government-assisted pooled insurance scheme the cost would be $14.6 billion but under a proper mitigation scenario the cost would be only $4.8 billion.
“The potential savings are demonstrable through numerous case studies,” the report said. It noted that a comparative insurance pool established in the US to provide flood insurance at subsidised rates to high-risk areas was not successful. The scheme has a deficit of $US24 billion ($25.5 billion) and “does not appear to be financially viable”.
“Over the long-term government investment in natural disaster management can have the greatest economic value in structured mitigation programs, rather than post-disaster assistance,” the report found.
Courtesy of The Australian Dairyfarmer