The true cost of extreme weather events

The Intergovernmental Panel on Climate Change (IPCC) is the United Nations body for assessing the scientific basis of climate change, its impact and future risks. The findings within IPCC’s 6^th assessment report published in 2021 (AR6), make clear that human-induced greenhouse gas emissions have led to an increased frequency and intensity of some weather and climate extremes going back as far as 1850. The contemporary evidence of this trend is being felt around the globe with a total of 432 catastrophic events in 2021, compared to an average of 357 annual events in the period between 2001-2020.

The AR6 report names Australia as one of the most vulnerable developed countries to climate impacts. Among the threats predicted are more severe bushfire seasons, intense heatwaves, more severe cyclones, heightened risk of flash flooding and more intense droughts.

The subject of natural disaster and climate change is one we have covered previously however recent research quantifies the economic impact of climate change and the intended policy measures required to ease the burden on Australians.

The recent research – commissioned by the Insurance Council of Australia (ICA) released by the McKell Institute – suggests that the cost of extreme weather events to every Australian household has risen to an historic high of $1,532 over the past 12 months. This figure is expected to jump to over $2,500 per year by 2050.

Of all recent events, the flooding which occurred in NSW and Queensland in the first quarter of this year has proved the most costly, with claims reaching 233,000 in number and a total of $5.28B in insured losses.

Despite the increased incidence and severity of extreme weather events, the percentage of public funds spent on resilience measures and risk mitigation has declined in recent years compared to the funds spent on clean-up.

The cost of clean-up is expected to rise to unsustainable levels unless this ratio is reversed and a change in policy strategy sees a significant increase to the funding of preventative strategies.

The new Federal Government is taking positive action in this regard and on September 7, introduced a Bill to Parliament setting out plans for a Disaster Ready Fund of $200M per year. It will be used to invest in preventative efforts such as flood levees, cyclone shelters, fire breaks and evacuation centres around Australia.

The Bill was introduced by Home Affairs Minister Clare O’Neil.

“Dedicating the Disaster Ready Fund to natural disaster resilience and risk reduction will provide a clearer distinction between the different funding sources for recovery and resilience and enhance the focus on building resilience for future natural disasters.” Said O’Neil.

The ICA has welcomed the Bill but has called upon State Governments to match this funding in an effort to protect communities vulnerable to extreme weather events and their flow-on effects to insurance namely, the availability and affordability of property insurance in Australia.