Fire, flood and storms and insurance

rachel-carter-thumb Rachel Carter

Victoria has been subjected to an increasing number of weather related disasters in recent times namely floods, fires and extreme storms. Despite this trend there are insufficient levels of insurance to cover the costs. The Insurance Council of Australia has calculated the damage bill to be in the billions. Black Saturday and Victorian Bushfires in February 2009 resulted in damage valued at $4 billion; the recent Melbourne hailstorms in March 2010 resulted in damages of just over $1 billion. Although it is too early to tell the precise figures from the flooding in Northern Victoria in early September this year, it is estimated to more than $10 million with damage costs rising daily as people are making claims. These are costs which individuals simply cannot afford to endure without sufficient insurance coverage.

Some of the issues associated with inadequate insurance were exposed by the 2009 Victorian Bushfires Royal Commission Final Report. Although the Royal Commission focused upon the fires, the effects of being uninsured or under insured is effectively the same for property losses resulting from all types of natural disasters

One of the most alarming outcomes of such catastrophic events is that those with insufficient levels of insurance tend to be those from the lowest socio-economic groups of Victorian society. Many of these people are tenants and loose most if not all of their possessions after such an event. The Brotherhood of St Laurence has claimed the worst implication of inadequate insurance is that after substantial property loss victims can spiral towards poverty not being able to cover the losses. Insurance is essential, particularly in our land of diverse and unpredictable weather.

For those who have no insurance we must modify our current insurance regime to allow for greater access to all and tailor a variety of different insurance policies to the community. Logically one resolution to this problem is to provide discounts or incentives for those on low incomes and those possessing health care cards. The way that these people are required to pay should be consistent with their low incomes so that individuals paid on a fortnightly basis can budget insurance into the money they receive rather than forking out a larger amount less frequently. Ensuring greater levels of insurability should be a key priority.

A further issue for those who do have insurance coverage is the adequacy of their coverage. Inadequate coverage is a direct result of society’s  poor financial literacy. Many have no idea about the extent of their insurance coverage and what the ‘sum insured’ works out to be in practical terms. The Royal Commission highlighted that people fail to take into account the costs of site clearing and building permits and only after an event will realize the inadequacy of their coverage. A majority of society is unaware that their insurance cheque must pay any outstanding mortgage before the insured can use any remaining money to rebuild. Individuals therefore need greater education and greater assistance in order to acquire the correct level of coverage. The insurance industry should step up to the challenge and use their resources and websites to help educate the community about the adequate level of coverage that is needed.

A convenient way of providing access is through the promotion of web-based educational tools. These are an inexpensive mechanism to better educate community, ultimately benefiting both the public generally and the industry through an increase in the uptake of insurance. The inadequate financial literacy preventing many from seeing the need for insurance is clearly a social problem and which must be rectified.

Policy makers need to get together and discuss this issue, essentially promoting greater access to insurance and ensuring greater community understanding. Why wait until a large proportion of the state is subjected to personal financial ruin? I believe we should act now to prevent the consequential sociological issues of dependence whereby uninsured individuals are forced to rely upon public support or government handouts to survive after suffering property damage from a natural event.

We should follow the words of the Honorable Justice Kirby (former High Court judge) from his recent address at the Australasian Fire and Emergency Services Authority Council Annual Conference in Darwin. We need to ‘change our laws, strengthen our infrastructure and repair mistakes [to create a] society that deserves the respect of its people. To ignore the lessons of history is to condemn us all to repeat its mistake’. Let us now move forward and promote greater levels of insurance!’

Rachel Anne Carter is a PhD Candidate at the Bushfire CRC and an Associate Lecturer in the School of Law.