A stitch in time may save nine but that has rarely guided the Australian mindset towards natural disasters, where government funding has always been focused on post-disaster recovery.

In fact, in the last decade, governments of all stripes have spent an average of $1.36 billion a year on disaster recovery and relief efforts. The average spending on mitigation? Just $56 million a year, or more than 24 times lower.

There are promising signs that could be changing though, with the Federal Government’s Productivity Commission’s draft report in natural disaster funding arrangements strongly recommending a major overhaul.

Commissioner Jonathan Coppel says the current arrangements are prone to cost-shifting, ad hoc responses and short-term political opportunism. This, in turn, creates a financial disincentive for state and local governments to invest in mitigation and insurance by ensuring they only pay a fraction of the costs of disaster recovery, while bearing the full cost of mitigation measures.

“The funding arrangements overwhelmingly tip the balance away from planning for and mitigating against natural disasters and towards waiting for expenditure to rebuild destroyed assets,” he says.

State of play

Currently, state and local governments can access post-disaster funding through the Natural Disaster Relief and Recovery Arrangements (NDRRA). To trigger funding under this scheme, a natural disaster must trigger state expenditure of $240,000 a financial year.

If this threshold is met, then states are eligible for reimbursement of up to 75% of their costs. Under the NDRRA, the Federal Government has disbursed about $650 million a year in the past decade. Meanwhile, the Federal Government is supplying about $40 million annually for mitigation works, via the National Partnership Agreement on Natural Disaster Resilience (NPANDR).

The Productivity Commission has urged a substantial reformulation, recommending that mitigation funding for the states be increased to about $200 million annually. At the same time, the commission recommends reducing support under the NDRRA by restricting eligibility to disasters that cause state losses of more than $2 million, as well as reducing the reimbursement rate from 75% to just 50%.

Although the development is sufficiently high risk to warrant an evacuation helipad, a three-day emergency food supply and two lifeboats, the Council felt [it] did not have the legal standing to decline the development application.

“There is a longstanding concern that governments underinvest in mitigation and spend too much on recovery, leading to higher overall costs for the community,” the report states. “Furthermore, government responses to natural disasters can be ad hoc and emotionally and politically charged,
which can result in inequitable and unsustainable policies.”

The report also recommends ceasing any federal funding of relief payments for emergency food, clothing or assistance to businesses and primary producers.

Two approaches

As well as ‘hard’ mitigation projects such as levees, the report also urges investment in ‘soft’ measures such as land use planning and building regulations. It’s an area NIBA has long argued for action for. In its submission to the commission, NIBA argues: “Insured losses occur in the built environment, where governments and government agencies have an influential – and often controlling – interest in the nature, extent and level of development. Most government activity relating to land use, planning controls and building standards occurs at the state and local government levels.”

Australian catastrophe insurance lossesIn its submission, Suncorp expresses concerns about weaknesses in planning powers in many areas, giving the example of a 970-dwelling recently approved by the Gold Coast City Council despite its location on a well-known flood plain.

“Although the development is sufficiently high risk to warrant an evacuation helipad, a three-day emergency food supply and two lifeboats, the Council felt [it] did not have the legal standing to decline the development application,” the submission states.

However, the Commission stopped short of recommending federal oversight on planning regulations, although it has called for state governments to give local councils more assistance in their planning.

Insurance in frame

Rising premiums, particularly in North Queensland, have triggered numerous calls for government intervention in the market but the commission has warned strongly against this.

“International experience has shown that government intervention in property insurance markets (either through direct provision of insurance or by providing reinsurance) weakens the price signals that insurance premiums send to households and businesses about the level of risk faced,” the report states. “These schemes also create fiscal risks. Governments have had to bear significant costs following large natural disasters because their insurance schemes failed to accumulate adequate reserves.”

Furthermore, the commission has echoed NIBA’s call to drop insurances taxes and levies, making special mention of New South Wales, where property insurance is hit with both a fire service levy and a general stamp duty.

“Removing or reducing state insurance taxes would improve the price signal to policyholders and improve the effectiveness of insurance as a risk management tool,” the report states. “The resulting price decrease could also encourage households and businesses to take up insurance or increase coverage.”

Vision check

However, the commission’s recommendations have already achieved strong resistance from some quarters, with outspoken Federal Member for Kennedy Bob Katter calling them disastrous. “If these recommendations were implemented many communities in the Kennedy electorate would face significant difficulties financially and economically recovering from cyclones or other natural disasters,” he says. “With rising insurance premiums, we are unable to protect ourselves.

Griffith University School of Government and International Relations’ Associate Professor Anne Tiernan says the proposed $200 million in annual mitigation funding is “grossly inadequate”, instead calling for the majority of future savings from disaster events be directed into mitigation. “It is unlikely that state and territory governments, particularly those most prone to natural disasters events, will accept the funding proposals without such a committment,” she says.

Even with a drastic increase in promised mitigation funding, Tiernan says it could be years before any effects are felt, given the issue’s complexity.