In the wake of cyclone Debbie, the insurance and banking industries are pushing for better mitigation measures, while the federal government lags behind. By Karen Middleton.

Business takes lead on climate disasters

At the back of their property down the road from South Golden Beach in northern New South Wales, Carole and John Cannon are trying to work out how to get their washing machine out of the creek. 

There’s a day bed in a tree nearby and an outdoor setting – heavy wooden table, chairs and umbrella – scattered somewhere in the bush. Like many others, they’re without power and hot water and the sewer pump has blown.

“I’m just grateful that all of my family’s alright,” Carole Cannon says, as she and her husband and their neighbours pile sodden and smashed furniture in the street for collection. 

The Cannons were away last week when the wall of water swept in between midnight and 2am, settling a metre deep around their elevated house and pouring into the ground-level rental cottage they own next door. 

It was so fierce it knocked the steel-panelled gate off its roller. A pair of shipping containers that stored equipment for their business was tumbled over like dice, and three cars parked on the property now won’t start and will likely be written off. 

The cottage floorboards are blistering and the flat surfaces in the couple’s home are covered in drying photographs, diary pages and other precious items salvaged, floating, from under the house. 

In nearby Murwillumbah, their daughter and her husband and pets fled their own flooded home in a kayak.

Carole Cannon knows many others fared worse. She describes it all as heartbreaking.

It’s the second flood since they moved to the tranquil low-lying bush property three years ago, with the creek running behind it and bushland waterways a few hundred metres beyond the houses across the road.

Previously, they lived at the Gold Coast, “high on a hill”.

“My dad told me I should never have left,” Cannon says. “He’s been telling John … he should build an ark.”

Because of the steep rise in insurance premiums, especially since the lesser inundation 18 months ago, their property is no longer insured for flood.

“We couldn’t afford the $18,000 for the premium,” she says. 

“The first year we got it – it was okay. The second year it tripled and the third year it was ridiculous … I would hope that insurance companies could be a little bit lenient with a disaster like this.”

The Cannons and their neighbours join the residents of Murwillumbah, Lismore and other affected areas of NSW and Queensland in surveying the damage from cyclone Debbie, and the storms and flash flooding of its aftermath, and asking what can be done to help communities protect themselves in future.

The same questions are being asked in the boardrooms of corporate Australia – especially but not only in the finance sector – with an increasing emphasis on planning for and guarding against such events, rather than just cleaning up afterwards.

The buzzword now is mitigation.

The principal actuary at Deloitte, Sharanjit Paddam, says cyclone Debbie and its aftermath highlight again that more work needs to be done.

“It does raise the question: Are we managing our exposure to all these natural disasters in a sensible way?” Paddam told The Saturday Paper. “Australia doesn’t have a large-scale mitigation and adaptation program. We don’t have a big program of strapping down people’s roofs, for example.”

The Insurance Council of Australia wants the federal government to focus on mitigation as a priority in the upcoming federal budget.

“Cyclone Debbie and the floods that followed it should be a starting point for state and federal governments to address mitigation,” council spokesman Campbell Fuller said.

In the insurance and superannuation industries, work is being done on the likely longer-term impact of climate change on the frequency and ferocity of these major disasters and how they and other investors – and ultimately governments – should respond. 

The big banks have also begun studying the implications of climate change on their risk exposure through mortgages reaching back 30 years.

ANZ bank chief executive Shayne Elliott told a federal parliamentary committee last month that his bank was examining how its investments would be affected, including in housing.

“We’ve done actually quite a bit of work around the impact of climate change in the broadest sense, in terms of weather and what that does to Australia in particular, and tried to assess our risk, if you will, about lending, and having customers in certain parts of the country,” Elliott said. 

He said in relation to housing, rising water levels were the biggest concern.

The findings of these and other studies are likely to affect househunters hoping to borrow, buy or build in areas not at risk currently but that will possibly be at risk in future, along with the local councils, developers and banks that will decide if they can proceed. They will also affect investors in industries deemed to contribute to climate change and the directors of companies faced with climate-related advice.

Househunters complain they don’t always have access to information on the longer-term risk facing particular properties and can end up facing exorbitant insurance premiums after they buy.

The Insurance Council insists home owners can always get some form of insurance but acknowledges they pay according to risk and the higher the risk, the higher the price.

The director of risk-rating company Climate Risk, Dr Karl Mallon, says detailed data exists on which areas are likely to be most in danger from flood, cyclone damage and other natural disasters. It’s just not being made available to prospective buyers.

This week, he challenged the Insurance Council of Australia to provide the geographical risk data available through local councils, saying he would turn it into an online tool for prospective home buyers.

“The thing I think is really lacking here is that ordinary mums and dads do not have access to that and they don’t have the ability to make a decision based on insurability,” Mallon told ABC Radio National. “So they get a surprise when they get a multi-thousand-dollar insurance bill, but they get it after they’ve bought the house.” 

The council said it would be willing to share the information. But all acknowledge that kind of information could have serious implications for the housing market.

With actuaries warning that some properties could become uninsurable in future, land values in some areas would likely plummet. And with local councils deriving much of their income from rates based on those values, there is a disincentive to make the information available. 

In February, the Australian Prudential Regulation Authority belled the need for Australia’s corporate sector to also be better informed about and equipped for the impact of dramatic weather events and, more specifically, climate change.

In a speech to the Insurance Council of Australia’s annual forum in Sydney, APRA executive board member Geoff Summerhayes said climate change was no longer seen as a future, non-financial problem. 

“Many of these risks are foreseeable, material and actionable now,” he said.

Summerhayes outlined two types of risk for business: the physical risk associated with the damage disasters inflict on property, resource availability and supply chains; and the “transition” risk as government policies, law, technology and the rules of markets adjust to a low-carbon economy.

Summerhayes suggested that while physical risks were obviously important, the longer-term impact was in the transition. He cited a legal opinion prepared late last year by Noel Hutley, SC, for the Centre for Policy Development and the Future Business Council, which found that company directors could be held personally liable in a legal sense if they were found to have failed to properly consider and disclose climate-related risks to their business. 

“The possibility of legal liability heightens risks for companies that aren’t responding,” he said.

“If entities’ internal risk-management processes are not starting to include climate risk as something that has to be considered – even if risks are ultimately judged to be minimal or manageable – that seems a pretty reasonable indicator there might be something wrong with the process. Similarly, if you’re an investor and you’re not already asking questions about how the companies you invest in approach these issues – perhaps you should be.”

Summerhayes ended with a warning: “These are shared responsibilities. When things go wrong, it reflects badly on all of us – regulators, entities, governments and the entire financial ecosystem.” 

While the financial sector is now seriously factoring the practical impact of climate change into their plans, many within it fear government is not.

Specialising in the impact of climate change, Deloitte’s Sharanjit Paddam is among them.

“Business has got it,” Paddam said. “Society has got it. State governments are getting it. It’s just federal government that doesn’t seem to get it at the moment. [It] seems to be acting just like Kodak. It’s clinging to film, whilst business and society have moved on to digital cameras. It just hasn’t figured out that there’s a better, cleaner and cheaper product out there.”

In 2014, the federal government asked the Productivity Commission to undertake the first national review of natural disaster funding in a decade.

It reported in 2015 and the government announced its response three days before Christmas last year.

The commission strongly advocated acting before events occurred, to minimise damage. It recommended the federal government increase to $200 million a year its upfront funding for mitigation measures – levee banks and other infrastructure reinforcement – to help lessen the impact of disasters.

It said that would allow it to reduce the contributions it made to the states to clean up afterwards. But the government rejected the proposal, saying the states were not keen on losing access to clean-up funds.

Some among the sector’s more cynical observers fear politicians believe they get more kudos for cleaning up after a disaster than for preventing it.

Heavyweight corporate lobby groups are springing up to press for action.

The Investor Group on Climate Change, comprising institutional investors collectively managing $1 trillion in funds, has formed to examine the “risks and opportunities” associated with climate change that will affect financial returns.

The group aims to improve disclosure of climate-related financial information. It’s urging a range of stakeholders, including government, to sit down together to discuss mitigation and adaptation of existing infrastructure.

Government remains the hardest to corral.

“It is striking that we haven’t done a national assessment of economic infrastructure at risk from climate change since 2012,” says the group’s chief executive, Emma Herd. “Investors are out there doing it. There’s no national framework for how to do that, there’s no national map of where to do it. Everybody has a role to play but it’s not helpful to continue finger-pointing. What the investment community is looking for is a pathway forward.”

The group has little time for those in politics still arguing about whether they believe in climate change.

“Investors believe in it and they are voting with their money,” Herd says.

Mara Bun, who chairs the Gold Coast Waterways Authority and is a director of several companies involved in renewable energy and ethical investments, agrees.

“I’m here to tell you that there is definitely an absent player,” Bun says. “If you go through the Infrastructure Australia priorities there is not a single mention of the need for mitigating or preventing the impacts of climate change.”

A spokesman for Infrastructure Australia says it considered policy around infrastructure’s role in climate change, sustainability and resilience in both the Australian Infrastructure Audit and the 15-year Australian Infrastructure Plan.

“We also expect any project business case that we assess to describe and quantify any significant positive or negative environmental impacts,” he said. “This may include but not be limited to impacts on air quality, carbon emissions or biodiversity.”

The waterways authority will host a resilience symposium on the Gold Coast next month, featuring an address from the chief resiliency officer for the United States coastal city of Miami, Susanne Torriente, on planning for climate-related challenges including rising sea levels and coastal inundation.

Deloitte’s Sharanjit Paddam prepared modelling in 2014 in conjunction with the University of NSW and Suncorp insurers on the likely insurance implications if climate change resulted in cyclones moving south, closer to Brisbane and the Gold Coast. It found both cities would be slammed if the cyclone-prone region shifted just three degrees in latitude.

The modelling predicts an almost 70 per cent increase in insurance claims but warns that is probably an underestimation because it doesn’t factor in the additional hail, heavy rain and coastal flooding that can accompany cyclones – the kinds of weather seen in southern Queensland and northern NSW in Debbie’s wake.

While the potential for cyclone damage has certainly increased with the rise in coastal development, science can’t say without long-term studies whether climate change is making cyclones and storm surges more frequent or sending them further south. But there are early signs. 

Paddam acknowledges the modelling on weather events is not perfect. “Everyone would like these models to be more exact. We’d love to know exactly when and where the next cyclone will be, but give us three years’ notice so we can get the town out of the way.”

The Queensland town of Grantham didn’t wait for the modelling. After it was hit by flash floods in 2011 that killed 12 people, the local and state governments stepped in to help move 30 homes to higher ground, avoiding tens of millions of dollars in likely damage when floods struck again two years later.

And the construction of a levee wall around the Queensland town of Roma had insurance companies lower premiums there by up to 90 per cent.

“Increasingly, we are going to have to look at measures like that,” Paddam says. “We should be spending up front to reduce the post-disaster cost and save money.”

South of the border in Lismore, cyclone Debbie’s backwash has prompted renewed debate about the height of the levee the local council built 12 years ago to withstand a one-in-10-year flood. It did not cope with last week’s much heavier and rarer deluge, and left the city under water.

Prime Minister Malcolm Turnbull toured Lismore this week, pitching in briefly with a broom and a brush. He pledged $25,000 concessional loans to help the town repair itself. But some residents are surveying the devastation of an entire business district and wondering how it will ever recover.

Defending the lower levee on aesthetic grounds, the mayor of Lismore, Isaac Smith, said “no one wants to live next to a Berlin Wall”. 

But the basic levee left Lismore’s residents and businesses with the worst of both worlds. 

Insurance premiums remained high because insurers correctly predicted the levee would not protect the town. At the same time, it created a false sense of security that it would.

That meant many residents and businesses didn’t have flood insurance, either because they thought they no longer needed it, or because of the cost.

The Insurance Council’s general manager of risk, Karl Sullivan, says a higher levee “doesn’t have to look like the Berlin Wall”.

“Plant some plants,” Sullivan says. “It would have protected the town from about half a billion dollars’ worth of damage.”

Now Lismore’s residents and those who live in flood-prone areas up and down the east coast – including Carole and John Cannon – are counting the human, infrastructure, financial and emotional cost of inadequate measures to protect from the wrath of Debbie and talking about how to prevent a repeat. 

Corporate Australia is urging those sitting around the cabinet table in Canberra to do the same.

This article was first published in the print edition of The Saturday Paper on April 8, 2017 as "Industry takes lead on climate disasters".

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Karen Middleton is The Saturday Paper’s chief political correspondent.

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