Regulator Advocates Greater Investment in Mitigation

In his August speech to the Australian Business Roundtable for Disaster Resilience and Safer Communities Geoff Summerhayes, Executive Board Member at the Australian Prudential Regulation Authority (APRA), discussed the rising cost of insurance and the “protection gap”, the difference between economic damage caused by natural disasters and insured losses.

“Without access to appropriate general insurance, households and businesses would be less confident to invest or take financial risks in vulnerable parts of the country. Access to credit may be reduced, while credit risk for existing loans would rise. Communities would take longer to recover in the aftermath of disasters, and more of the financial burden of recovery would fall on governments and – by extension – taxpayers. For these reasons, countries with larger insurance protection gaps typically suffer more severe economic consequences after disasters, such as reduced productivity and higher debt levels”.

Mr Summerhayes said APRA’s view is that declining insurance affordability and accessibility in Australia’s north can best be meaningfully and sustainably addressed by tackling the root cause: the high, rising and volatile cost of natural disasters. “The most effective way to do this is through greater investment in mitigation to protect homes, businesses and infrastructure from damage.”

“There is no doubt that some physical mitigation measures, such as flood levees or sea walls, can be expensive, however the billions spent each year cleaning up from disasters suggests the money is there – it’s just being spent after the damage is done. There is a lot of merit in the Productivity Commission’s assessment that paying for mitigation is far cheaper than paying for post-event remediation, and enduring the subsequent economic repercussions.”

Read the full speech at: https://www.apra.gov.au/news-and-publications/executive-board-member-geoff-summerhayes-speech-to-australian-business