Natural disasters prove costly
The latest annual risk survey by global insurance brokerage Aon has shown a sharp rise in concerns over business grinding to a halt due to a natural disaster.
Indeed, the concern over business interruption has climbed two places to be the fourth most significant risk ranked by businesses this year.
Aon Australia says the change can be attributed to the floods and fires of recent years, with many businesses still feeling the effects of the disaster.
Events such as Queensland and NSW floods "have left many organisations contemplating business interruption exposure from a vertical or supply chain perspective, due to the consequent impact on their customer base," Aon said in its latest Australasian Risk Survey.
Australia's costliest natural disaster in recent years has been the summer floods and cyclone that pummelled Queensland two years ago.
The total insurance cost of the disaster is expected to come in at about $3.8 billion, according to Insurance Council of Australia figures. This is on top of more than $1 billion last summer after flooding swept across NSW and Queensland.
The bulk of insurance payments were used for rebuilding, replacement costs and business interruption payouts. Payouts can also include cash advances to ensure communities and businesses have an income during a crisis.
Flooding regularly tops insurance payouts when it comes to natural disasters as the damage can often be over a large geographical area. Fittings and equipment often need to be fully replaced, while buildings can sustain substantial damage.
Flooding regularly hits 7 per cent of residential and business addresses in Australia, causing on average about $450 million in annual damages, according to ICA figures. However, payouts from year to year can often be higher.
While business and home owners can take measures to minimise damage caused by flash flooding, insurers argue that more can be done by governments to spend on disaster mitigation. Of the $110 million spent by various levels of governments over the past four years, to protect communities from natural disasters, only a small proportion has been spent on protection from floods.
The insurance industry argues that projects to mitigate damage from floods - including building levees and diverting waterways - should be prioritised nationally.
Indeed the Insurance Council of Australia says improvements in stormwater and drainage works should be a priority for flood-prone areas. "The failure or inadequacy of public stormwater mitigation accounts for approximately a third of water damage experienced by property owners during large rainfall events," the ICA said in a recent submission.