We read in this issue that Cyclone Debbie was the world's second most costly disaster in the first half of 2017 but only fourth in terms of insured losses behind three three events in the US which each had total losses less than Debbie. While these US events were not floods, it does place a spotlight on the unsustainability of disaster insurance in the US. I was therefore interested to read below the staggering statistics surrounding the US flood insurance scheme. Given the number of buildings that have been repeatedly flooded and rebuilt it is no wonder it is $25billion dollars in the red. A recommendation in a recent report that insurance premiums be used to relocate rather than rebuild highly exposed buildings has merit.
In my mind flood insurance should be a mitigation measure to manage the residual financial risk after all other feasible and affordable flood mitigation measures have been implemented. In that regard it needs to be both commercially sustainable for the insurers and affordable to those being insured. While this is not possible in all places because of poor planning decisions in the past,
I suspect that we are dismissing some mitigation options, including moving development, because we are underestimating their benefits.
I have written previously on how I believe that most of the stage damage curves we are using in Australian flood risk management studies grossly underestimate potential flood damages (more information here). This means that we are in turn underestimating the benefits of flood mitigation options which are being dismissed as being economically unjustifiable. Then, those who have to turn to flood insurance to manage their financial risks are faced with premiums which seem to be well above the annual average damages suggested by flood studies. Why the difference?
A lot has been said in the past (including by me) about the need to provide insurers with the best available flood level and floor level data for them to be able to accurately price premiums. Yet even in this issue of FM we are reporting on an internal stoush within a council which wants to charge insurers for up to date flood data. But that is only half of the equation. Insurers also use their estimates of potential damages to set premiums and it is clear from our work that the damage estimates they use are well above those in the standard damage curves used in most Australian floodplain risk management studies.
Given the number of significant floods we have had around thecountry since flood insurance became widely available, I suspect that the insurance company loss estimates are quite accurate because they are based on actual reimbursed losses. That loss data needs to be pooled and updated national stage damage curves need to be created which can be used consistently across the country for assessing flood mitigation options. Only then will we be able to better mitigate flood losses, reduce our flood recovery spending and make flood insurance more affordable.