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Climate change to inflate insurance costs in flood and bushfire-prone communities

Dr. Karl Mallon told ABC reporter Sinead Mangan, that governments need to do more to help vulnerable communities deal with the impacts of climate change.

By Sinead ManganAlex Hyman and Sofie Wainwright

Posted Wednesday 18 Nov 2020 in

Key points:

  • A climate risk analyst says home insurance premiums could increase to the point where many areas become unaffordable
  • An insurance spokesman says that has not happened yet, but wants the Government to invest more in disaster mitigation
  • In a NSW town hit by fire in 2018, only 16 of the 69 houses had been rebuilt due to insurance issues

Severe weather has rendered parts of Australia uninhabitable, properties will become uninsurable, and people will be priced out of their homes, leading climate scientists warn.

Across Australia, 383,330 addresses were classified as high risk in 2020. That number will almost double to 735,654 by 2100, according to a report produced for local government by analysis platform Climate Risk Engines.

Leading climate risk analyst Karl Mallon, chief executive of Climate Valuation, which provides extreme weather analysis on construction and development to banks and the property industry, said an increasing number of properties were in the insurance “red zone”.

“Premiums are going to increase and they may become unaffordable,” Dr Mallon said.

Insurance Council of Australia spokesman Campbell Fuller said no region in Australia was uninsurable — for now. “However, it is possible some regions may become difficult to insure in the future,” he said.

This week, the CSIRO and the Bureau of Meteorology produced data that found Australia’s climate had warmed by 1.44 degrees Celsius, plus or minus 0.24C, since 1910.

Leading climatologist Greg Holland, a fellow of the Australian Meteorological and Oceanographic Society, said the science clearly showed Australia’s climate was continuing to warm and that the frequency of extreme events was increasing.

“We’ve been talking about climate change as something in the future — it’s now in the past,” he said. “The reason people are experiencing things like massively increased intensity and types of bushfires, along with the other extremes weather brings along, is because it is here now.”

First the fire, then the finance

Bega Valley councillor Jo Dodds has witnessed the devastation of a major bushfire firsthand. In early 2018, her home near Tathra, New South Wales, was threatened on three sides by bushfire.She could see smoke rising from the homes of her friends and could hear gas bottles exploding.

Cr Dodds said 69 houses were lost in that fire — to date only 16 had been rebuilt. A major impediment to rebuilding, she said, had been insurance.

“Even people with gold-plated insurance … are still finding they can’t replace the house they had with a similar house,” Cr Dodds said. “I haven’t heard of cases of that yet, but there is no doubt it is in everybody’s minds.”

“Some people may be finding they can’t afford the level of insurance, and in some cases there are no insurers that are willing to insure.

Dr Mallon described communities like Tathra as victims of a changing climate. “These are people who, through no fault of their own, are facing costs and financial threats to their families that they can’t afford,” he said.

‘Data 30 years out of date’

Retiree Erna-Jean Pozzetti and her husband, Claudio, own a large stake in Ocean Resort Village, a unit complex in Mackay in northern Queensland, an area vulnerable to cyclones and floods.

When they bought 14 years ago in 2006, insurance on the property cost $18,000 a year. Their latest strata commercial bill quote was for $174,000 — more than triple last year’s amount.

, Climate change to inflate insurance costs in flood and bushfire-prone communities, Climate Valuation
Karl Mallon says insurance premiums are rising as climate change causes more weather extremes.

Dr Mallon said this type of inflation would become commonplace for areas prone to natural disasters. “When you buy a house or issue a mortgage you are taking on a 30-year commitment,” he said.

“Thirty years is a long time in climate change.

“In principal an insurance company only takes a one-year view of the future. But what we are seeing is over 30 years there will be substantial changes. Someone might be able to afford an insurance bill today, but it doesn’t mean they can later on in their mortgage.”

Dr Mallon said insurance companies had been caught off guard by the severe weather caused by climate change. “[Insurance premiums] are based on data that is frankly 20 or 30 years out of date,” he said.

“They are playing catch-up to get their premiums to where they need to be.

“We have got properties not just in the north of Queensland, but big cities like Melbourne and Sydney, where the risks are extremely high because the wrong properties are being built in the wrong place.”

Moving away from disaster zones

Australians love to live among the trees and by the beach, but Dr Holland said in parts of Australia this would simply be too dangerous. He said governments would have to move people en masse from areas prone to severe weather.

“It’s happening around the world,” he said. “We have gone for the sea change and tree change option and moved into these glorious areas without taking too much notice of the stark danger that exists there and existed there even 30 or 40 years ago.

“We could put that thought off because it was a relatively rare event — but as it has become more common we do have to make that decision.”

, Climate change to inflate insurance costs in flood and bushfire-prone communities, Climate Valuation
Erna-Jean and Claudio Pozzetti at Ocean Resort Village in Mackay October 2020(ABC Tropical North: Ollie Wykeham)

Dr Holland said governments could not sit back and watch people get priced out of their homes. “There are some hard decisions that have to be made,” he said. “I understand this, because I live on a farm where we live with the fear of smelling smoke every day during summer.

“But the facts are there are some regions that are uninhabitable, that we are in at present — unless you have the money.

“We put a lot of blame on the insurance company because they are the sort of people who are charging you that money, but they are caught by the same thing.

“The Government has done very little in the way of helping out those who are in trouble and it has done pretty much zero in stopping the climate change happening.”

Dr Mallon said governments needed to provide grants and investment to help communities build appropriately in areas of bushfire and flood.

“It is not their fault,” he said. “They are not the polluters, but we need to step in and support these communities financially.”

Mr Fuller said governments needed to invest in mitigation to future-proof communities. “Implementation of stronger building codes, improved land use planning and permanent mitigation measures, where necessary, will be key to ensuring an insurable future,” he said.

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