Today’s correspondent is doing a project on insurance and natural disasters. I offered to answer their questions provided I could put the answers here (private answers cost a professional fee). They agreed so here are the questions and my (not fully researched; which also attract a fee) answers:
- Is disaster insurance legislated for? For example, in New Zealand after the earthquakes, the public were able to access a specific fund that the EQC (earthquake Commission) had set up after the 1931 earthquake.
Australia does not have an equivalent of the Earthquake Commission or disaster insurance.
There is legislation governing insurance but that is not directed to ‘disaster insurance’ per se. The Insurance Contracts Act 1984 (Cth) and the Insurance Act 1973 (Cth) are items of Commonwealth legislation as the Commonwealth has the powers to make laws with respect to ‘insurance, other than State insurance; also State insurance extending beyond the limits of the State concerned’ (Australian Constitution, s 51(xiv)).
The commonwealth does legislate for and provide a re-insurance pool to help carry the risk of terrorism events; Terrorism Insurance Act 2003 (Cth). There is no equivalent for natural disasters.
Arguably the Disaster Recovery Funding Arrangements 2018 are a form of insurance. Under those arrangements the Commonwealth meets up to 75% of state expenditure on eligible relief and recovery tasks. Eligible expenditure falls into one of four categories:
- Category A ‘forms of emergency assistance to individuals’ ;
- Category B counter disaster operations for the protection of the general public b) emergency works for essential public assets c) immediate reconstruction works for essential public assets d) essential public asset reconstruction works for which the state develops an estimated reconstruction cost in accordance with these arrangements and low interest rate loans and subsidies for primary producers and business;
- Category C ‘a community recovery package that is intended to support a holistic approach to the recovery of regions, communities or sectors severely affected by an eligible disaster’; and
- Category D ‘an act of relief or recovery carried out to alleviate distress or damage in circumstances which are, in the opinion of the Commonwealth, exceptional.’
This is not however insurance as understood as a contract between an insured and an insurer. The states do not pay a premium for this protection. It is an exercise in cooperative Federalism.
- Does the government contribute to any disaster insurance fund?
Beyond the terms of the Terrorism Insurance Act 2003 (Cth), not to the best of my knowledge.
- Are there emergency management policies that include insurance in their plan
The National Strategy for Disaster Resilience says (at [3.5], emphasis added) that a resilient community:
- … develops a strong understanding of the financial implications of disasters, options such as insurance are available to reduce the financial burden, and there are more choices and incentives to mitigate financial risks to households and businesses.
- Individuals and businesses have a strong understanding of the availability and coverage of insurance, including the risks that are included and excluded from their existing insurance policies.
- Settlements, businesses and infrastructure are, as far as is practicable, not exposed to unreasonable risks from hazards or have implemented suitable arrangements, which may include hardening infrastructure or taking up adequate insurance, to protect life and property from known hazards.
The National Disaster Risk Reduction Framework (p. 9) sets as one of its priority outcomes to ‘Improve the accessibility, variety and uptake of insurance’. To that end Strategy E is:
All sectors should work to diversify the variety of insurance products, better communicate these products, and address barriers to insurability – for example, by supporting assessment of asset conditions.
- If so, are these hazard specific?
- If a major event or disaster happened, what part if any, do insurance bodies play or get involved?
Critically the Insurance Council of Australia, on behalf of its members, declares an event to be a ‘catastrophe’. More information on that process can be found on the ICA website – https://www.insurancecouncil.com.au/for-consumers/catastrophe-arrangements.
- If they do, at what stage does this happen?
That is a matter for the ICA.
- Who decides (State or Federal) when insurance is made available?
I’m not sure I understand the question. Essentially it is insurers that decide when they will offer insurance. If they do offer insurance, they must do so on the terms of the Insurance Contracts Act 1984 (Cth). That Act (ss 34 and 37A and the Insurance Contracts Regulations 2017 (Cth) rr 21 and 22) says that an insurance policy for home or home contents must include cover for damage caused by:
- fire or explosion;
- lightning or thunderbolt;
- bursting, leaking, discharging or overflowing of fixed apparatus, fixed tanks or fixed pipes used to hold or carry liquid of any kind;
- impact by a falling tree or part of a tree; or
- storm, tempest, flood (within the meaning given by section 34), the action of the sea, high water, tsunami, erosion or land slide or subsidence;
Following the 2011 floods, there is now a common definition of flood that applies to all home and home contents insurance policies. A flood is (r 34):
… the covering of normally dry land by water that has escaped or been released from the normal confines of any of the following:
(a) a lake (whether or not it has been altered or modified);
(b) a river (whether or not it has been altered or modified);
(c) a creek (whether or not it has been altered or modified);
(d) another natural watercourse (whether or not it has been altered or modified);
(e) a reservoir;
(f) a canal;
(g) a dam.
- If insurance is made available, who administers this?
The private insurance sector.
- Is there any emergency management plan, policy or legislation that specifically references insurance?
That question has been answered, above.
- What is the role of insurance in responding to natural disasters?
Insurance is a means to spread financial risk. The role of insurance is to build resilience by giving those who are insured access to funds to recover from their insured losses – whether that is loss of income, loss of homes, loss of business assets etc. Having insurance is part of an individual’s personal resilience because most of us could not afford to absorb disaster losses on our own account. Insurance is also relevant to business and governments to spread the predictable losses from disasters. Insurance assists community recovery by putting funds into communities by way of payments to those insured so that they can use the money to engage trades people and buy goods and services.
For a discussion on ‘Insurance Based Disaster Recovery’ see https://disasters.org.au/