What's next, if we can't avoid flood risk entirely?

Flooding is one of the costliest extreme weather events that Australians face.

As a recent report from the Insurance Council of Australia (ICA) shows, more than one million private properties, or about one in 10 homes in Australia, are at risk from flood damage.

The recent devastating floods in coastal NSW and South-East Queensland were the costliest ever in insured value. And just this week, parts of Queensland have recorded record or near-record May rainfall and flooding.

Once again, our attention is focused on the challenging issue of disaster management planning, insurance and climate change.

Five years after the 2017 floods in Lismore and just over a decade since the Queensland floods, our TVs and social media feeds have again been filled with flooded towns and farmland.

We have witnessed residents’ and business owners’ despair as they not only come to terms with the physical damage but often the realisation that this is the new normal, and the fear that their hometown may be uninhabitable.

The word 'uninsurable' has become a common phrase. Many of those affected by the floods admit to being uninsured or underinsured because they cannot afford the premiums.

While there is no silver bullet to guarantee homes and businesses remain 'insurable' as more extreme weather events unfold, there are solutions.

We need preventive measures, that is mitigation and adaptation, and they must go hand in hand with insurance. It’s all about building resilience but we need to do this together - governments, residents, business owners, engineers, builders, the insurance industry, and others.

Flood affects more people around the world than any other natural disaster. Swiss Re Institute research shows since 2001, global insured losses from flooding cumulatively amounted to close to USD 140 billion (AUD 188 billion).

Insurance losses from the recent floods in Northern NSW and Southeast Queensland are estimated by PERILS to be AUD 3.991 billion. Uninsured economic losses are likely to be higher.

Federal and State Governments need to invest more to protect Australians against an increasingly extreme climate – echoing calls from the ICA for AUD 2 billion in funding over the next five years. Though it's pleasing to see initiatives like the AUD 741 million Queensland Resilient Residential Recovery  package, of which 50% is funded by the Federal government, come to life. Budgets should also be set aside to mitigate such catastrophes before the loss has happened.

In addition to infrastructure and schemes, while these investments impose a short-term cost on already strained Government budgets, spending now will reduce costs to homeowners, renters, and businesses in the long-term, reducing the impact on government balance sheets, in turn reflected in lower taxes.

Homeowners and business owners can start thinking about how to mitigate flood damage. Should they remove carpets for floorboards or even polished concrete? Should they install larger roof gutters and drainpipes? Move electronics and other valued items to the upper floors if they are fortunate enough to live in a multi-storied dwelling.

For many homeowners, this will be a costly exercise, but it will reduce the risk of damage and drive down premiums.

To ensure all can afford to protect their homes against floods, governments can step in to enable and incentivise better practices. For example, government subsidies for the installation of solar panels have been embraced by homeowners.

Now that we must acknowledge climate change, governments need to help homeowners and businesses adapt and live with the consequences.

Why not provide policyholders with government subsidies to retrofit homes and businesses or mitigation measures on new builds, including easily accessible roof storage or elevated homes?

The insurance industry can help by working with governments to educate homeowners about measures to protect their homes, teaming up with builders and roofers to provide discounts on renovations that reduce flood and storm damage risk, and providing insights on which areas are more exposed and vulnerable.

Insurers can also contribute by helping governments and planners better understand flood risk. Insurers use a wide set of tools ranging from sophisticated flood hazard maps to models that provide granular detail for major flood types and predict asset-specific vulnerabilities, which is continuously being improved with advances in academic research and computing capabilities.

The resulting granular data gives insurance companies a better understanding of their policyholders and allows them to have a more robust conversation about their risks and what product best suits their needs and budget.

With a better understanding of where flooding events will occur and their probable impact, governments can better plan new housing development by, for example, ensuring they include parklands to act as natural sponges; or restricting construction in areas that have become too hazardous; and updating building codes to ensure roof gutters and stormwater pipes and drains are large enough to cope with more extreme rainfall rates.

As the recent Lismore floods demonstrated, we can't avoid flood risk entirely. We can find ways to reduce the overall exposure and recover faster. By doing so, insurance will be made more affordable. With a greater uptake in insurance comes the additional benefit of economies of scale.

A recent development in dealing with increased extreme weather is parametric (index-based) insurance, which automatically triggers a payout once a certain metric, such as rainfall rates and volumes are met. In addition, satellites, drones and aircraft can provide real-time flood information, speeding up insurance assessments. These innovations allow insurance to accelerate recovery and provide more flexible product options. Homeowners and businesses with parametric policies who suffer an economic loss could receive a supplementary payout from their insurer within 48 hours, with no need for an inspection, based purely on rainfall totals and river rises. This would provide policyholders with the much-needed funds for cleanup, emergency accommodation and repairs.

Natural disasters, be they floods, tropical cyclones or bushfires are likely to get more extreme. It is up to insurers, governments, industry, and individuals – all of us – to work together to ensure the financial impact is minimised.