You have an excellent blog here, please keep up the great work!
I have a question about State disaster mitigation, and the government?s involvement therein. By all accounts, flood mitigation will cost considerably less that total claims costs in the event of a large scale flood as was experienced last year in QLD. The small town of Emerald is an example where a total cost of $4 million would make this extremely flood prone town virtually flood-proof, which clearly is the more ideal measure of prevention rather than extremely expensive and taxing cure.
There was another example on an apparent failure to mitigate disaster when I read that only about half of the prescribed back burning was done on fire prone land this financial year. (please see http://www.abc.net.au/news/2012-07-12/prescribed-burns-behind-target/4126196?section=wa)
My question is what should an insurance organization?s position be on this? A joint venture to split the costs is an option, but insurance companies should not have to diminish its pools to do the governments work. Has this come up in history before? and if so, what was the outcome?
I appreciate your input on this as it looms as an up and coming issue for Australian insurers, and the sooner the action, the better the outcome.
Thank you once again Allan.
Cheers,
Andrew.? [surname and email address provided]
This is a really tough question Andrew.
On the one hand, I think we all accept that?bush fire and flood are two major perils that are part of the Australian landscape.? If we?want to live safely and?securely?then?risk management measures have to be taken. We seem to?be getting it right after?cyclones with improvements to the Building Code of ?Australia to ensure that homes and other buildings are built much stronger to cope with future events. With the floods, councils tend to allow people to put back exactly what they had and they continue to approve developments in flood or bush fire prone areas.
I feel strongly that the insurance industry should not be the ones funding mitigation strategies.? This only encourages the further development of locations which really should not be developed.
This is the role of government at all levels,?and as far as current and future residential or commercial sub-divisions,?the developers who seek to profit from the development of land in these areas and the owners/occupiers of the land itself. Governments at all levels are claiming poor, yet I cannot recall in my lifetime when they have collected so much in taxes. How did state governments of old achieve so much without taxes from gambling, GST and the raft of other taxes and levies? On the other hand I laughed out load when I saw the Federal Government make a big deal about a $47,500 sandbagging machine being donated to the Ipswich SES. The chilling words of ?too little ? too late? sprang to mind.
Clearly with the experience of the insurance industry in loss statistics and risk management, appropriate representatives from the industry?can provide advice but it should not be up to those that insure to fund the actual remedy. Assistance can also be given in prioritising projects or regions for loss mitigation works.
The entire community and economy benefits from the work itself?and everyone involved should pay not just those that are prudent enough to insure. Insurance, particularly while the state based taxes are so high, coupled with the push for national wide flood cover is becoming unaffordable as it is and to push these costs onto the industry, which will by necessity be passed onto Insured?s will force more people to under insure or not insure at all. This is no good for anyone.
The role of insurance is to protect financially when ?accidents? occur, not certainties.
I think the insurance industry can work with local communities to have much needed work be it capital expenditure to permanently reduce the likelihood of an event or reoccurring?maintenance in lobbying government to action the work and I see this is the role of our industry bodies. More and more I am inclined to think that there should be an overarching body that represents all aspects of the industry, the underwriters, brokers, loss adjusters, underwriting agencies, claims preparers, risk managers etc who can lobby for corrective action. At the moment, it appears to be that the divide and conquer approach used by politicians is working.
I do admire the approach taken by Suncorp with the issue of flood in Roma which does appear to be obtaining results. As I have found out with my NoTaxOnInsurance.com.au website it is dangerous for an individual or company to take on government like this as they tend to try and get even. That is where an effective industry body can achieve so much.
I do not think I have solved the problem but hope it helps in your own thinking.
Regards
Allan
Andrew replied
Allan,
I really appreciate your well informed and thought out response, it does help me to understand the great benefits of successful mitigation (cyclone proof housing is a great example), but also the complications associated with a divided approach to the matter from the insurers, and a resilient and allegedly underprivileged government.
I also wholeheartedly agree with your idea of a unified representative body who acts as a ?go-between? for insurers and the government. Perhaps a project for a man of your capability? (no
pressure!)Thank you once again, your input has added to my knowledge of how insurance (really) works.
Cheers,
Andrew
Thanks for your kind words and thanks for the nomination but no thanks. It really needs an organisation rather than an individual. There are so many issues facing our industry, it needs to be?a full time effective and well-funded organisation.
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