“Responsibility to enable widespread flood insurance coverage to be available in Australia rests firmly with Government,” said Deloitte General Insurance actuarial partner Elaine Collins. To this end she was disappointed by the fact that the Treasurer in last week’s budget failed to address damage to property caused by flood in its $2.3 billion allocation to address climate change.

Collins comments reiterate those of the Insurance Council which pointed to the need for Federal, State and local government to be involved in protecting the community from the effects of flood.

“Because of changing climate, floods are likely to become more prevalent due to climate extremes,” she said.

Collins pointed out flood cover for domestic households is often excluded from policies because the cost of insuring houses built on flood plains is prohibitive. Such properties have a significant exposure to flood damage and to mitigate loss requires Government support.

“With more than 80% of Australia’s population living within 50 km of the coast, concentrated in towns and cities along the coastal fringes of the east, south-east and south-west, floods are Australia’s most common and most costly natural disaster,” she said.

“Over the past three decades, the cost of all flooding in Australia has ranged between $2.5 billion and $4 billion per decade,” said Collins.

Deloitte’s research looking at the US and UK, shows that these governments provide support by either supporting flood cover funding or constructing flood prevention measures.

In the UK, the flood infrastructure includes the Thames Barrier funded by the Government. The insurance penetration in the UK is 95% for simple risks and 100% for industrial risks. This is the same risk mitigation infrastructure called for by the Insurance Council of Australia (see INA May 16 2008).

In the US, Residential Flood Insurance Project provides basic flood cover and additional cover is provided by private insurance companies.

Ms Collins noted in her report on Climate Change: its impact on insuring flood risk in the JPMorgan Deloitte GI Survey 2007, approximately $1,500 billion of Australia’s wealth is locked up in homes, commercial buildings, ports and other physical assets which is equivalent to nine times the current national budget or twice Australia’s gross domestic product. The insurance industry currently underwrites the risk to the bulk of these assets from weather events, but climate change is threatening its ability to do so as effectively in the future.

She said that “the effect on Australia from climate change is now a social, economic and political issue.”