The Actuaries Institute has called for a temporary national reinsurance pool to provide financial incentives to encourage flood mapping and mitigation infrastructure and be a temporary measure while the benefits of other initiatives are realised.
The recommendation forms part of a string of proposals the institute has made in its submission to the Productivity Commission’s issue paper on National Disaster Funding Arrangements.
It says a reinsurance pool should have “clear risk price signals and mitigation targets” and should only be available to existing properties.
The institute says that it could be a while before any mitigation benefits are realised and so the national reinsurance pool could allow natural disaster costs to government budgets to be smoothed, allowing for better planning, budgeting and funding of mitigation costs. They say the pool should be wound up over 10 to 15 years.
The profits from the pool could be invested in infrastructure mitigation projects, it adds, and acting as a reinsurer will alleviate some temporary market dislocation where affordable insurance cover is not available via the private insurance market and minimise the distorting effects of the government participating in it.
The institute also calls for no future development in areas that are of unacceptable risk of natural disaster. To make this work, overlapping responsibilities of local councils and state and federal governments would be removed to ensure a consistent and common framework.
In addition, it calls for investment in mitigation infrastructure which, it says, will reduce insurance premiums in areas vulnerable to natural disasters. Where insurance is not available or affordable it can be difficult for a community to be sustainable without the assistance of government bailouts, the institute explains.
It states: “Investment in mitigation infrastructure will reduce insurance premiums in areas vulnerable to natural disasters. Where insurance is not available or affordable it can be difficult for a community to be sustainable without the assistance of government bailouts.”
Echoing similar calls, the Institute also recommends the need for increased investment in natural disaster mitigation, including government expenditure on infrastructure projects that will reduce communities’ vulnerability to natural disasters such as floods.
To read the full submission, click here