Big Cost Needs a Big Risk Assessment
Between 2000 and 2009 natural disasters cost the federal government about $1.5 billion. Then in the following 3 years they cost $7.7 billion, $1.6 billion and $2.1 billion respectively. That’s right, in each of the last 3 years disasters have cost more than in the previous ten years combined.
This huge increase has not gone unnoticed, the federal government will initiate a Productivity Commission inquiry into national disaster funding arrangements later this year.
The inquiry will undoubtedly consider where governments are spending on disasters, but will it look at where that money is coming from?
Although state and local governments do insure some of their assets the predominant approach to funding disaster losses in Australia has been to rely on the federal government’s ability to borrow money at rock-bottom rates. This is clearly not sustainable in the long term.
There are a range of ways governments can deal with disaster costs and their variability, from public disaster funds to catastrophe linked securities. These methods can also make the cost of disasters something that’s up-front and thus give governments strong incentive to invest in mitigation.
Up-front spending requires knowledge of how much the government will need to pay in the long term. All existing estimates for annual disaster losses in Australia are based on statistics of past events. Leaving aside the future influence of climate change and demographic growth these figures are heavily flawed. Simple approaches based on historical statistics just don’t work. Disaster losses follow a power law and statistical predictions will always underestimate the probabilities of large losses.
Fortunately there is another way – a comprehensive, bottom-up National Disaster Risk Assessment.
This process would bring together the massive amounts of existing data and modelling expertise on disaster risk in Australia, identify and address gaps and refine tools to improve risk assessment. The results would enable the estimation of not only the annual costs of disasters, but also the cost of the worst disaster seasons.
Risk Assessment is more than just modelling. To get the best outcomes requires collaboration among stakeholders to share knowledge, experience and ideas for reducing disaster risk. Governments, NGOs, academia, businesses and communities all have unique abilities to reduce disaster risks and the risk modelling activities should meet their needs.
It’s in actually contributing to risk reduction that a National Disaster Risk Assessment could really see gains. Since the 2002 COAG inquiry into Natural Disasters in Australia there have been more than 160 government inquiries into disasters, producing a wish-list of close to 4000 recommendations. Though the National Strategy for Disaster Resilience has brought together key strategic priorities, the level of its implementation is unclear.
Coming out of the twin strands of data-driven risk modelling and stakeholder-driven risk assessment a more focussed approach to resilience could be taken: A 3-year National Plan with a small number of concrete, achievable priorities and clear deadlines for implementation. As these priorities are completed new ones can be added through the risk assessment process, ensuring that the National Disaster Risk Assessment is an ongoing project rather than something done once and then shelved.
A National Disaster Risk Assessment would need a custodian to ensure this continuity and ensure national risk assessment becomes a long-term activity of government. The Productivity Commission, with its modelling and consultative expertise and long history of influence of national policy could be one potential option. Or perhaps the creation of a new agency, say a National Disaster Risk Commission, could better meet this task.
Regardless, making decisions about funding future disaster losses without even really knowing what they could be is a risky game.