At what cost? Mapping where natural perils impact on economic growth and communities

Working with IAG, SGS has examined the population data and economic activity of all Local Government Areas (LGA) in Australia and compared it with natural peril risk levels provided by the Insurance Council of Australia and IAG. The aim of this analysis, released in Canberra on Tuesday, is to highlight locations in Australia which are at the greatest risk of various natural perils and how this risk intersects with economic production and local capacity to mitigate or respond to disasters. This report, and the interactive maps and data files, identifies the LGA’s with the greatest risk.

Natural perils have long been an issue in Australia. There are a number of options available to better manage their impact. People and business can be relocated away from heavily affected areas. Land use planning can direct growth to lower risk areas. Flood levees and dams can be built to keep the community safe. Building codes can be improved to better protect buildings from the impacts of natural perils. All of these types of actions will reduce the risk of natural perils in many parts of Australia.

However, it is rare that these actions have been undertaken in a coordinated manner to deal with a natural peril. Too often there has been an ad hoc approach to deal with the impact of natural perils rather than taking steps to mitigate the impact of future events. As a result, large parts of the country, sometimes the most populated or economically valuable, remain exposed to natural perils. Australia is at growing risk of natural perils such as cyclones, bushfires, storms and floods. If unmanaged, these risks will damage houses, businesses and infrastructure now or in the future.

Areas of key economic importance identified as being at risk include large parts of our mining industry and our knowledge economy located in the major CBDs:

• $326.6 billion worth of GDP (20.3 per cent of the economy) and 3.9 million people (17.3 per cent of the population) were in LGAs with a high to extreme risk of cyclone. Recent cyclones have already significantly impacted on mineral and agricultural production.
• 28.4 per cent of GDP ($425.5 billion) and 24.9 per cent of the population (5.5 million people) were living in LGAs at high to extreme risk of flood. Flood events in Queensland in 2011 were highly disruptive to economic activity and caused widespread damage.
• The Melbourne CBD and its 450,000 workers are at high risk of flooding which has impacted on the transport network in the Melbourne CBD on a number of recent occasions causing economic disruptions.
• The half a million workers in the Sydney CBD have also experienced transport disruptions caused by fierce storms in recent years.

It is not only economic activity which is at risk from natural peril. The Queensland LGAs of Brisbane, Gold Coast, Townsville and Moreton Bay are at high to extreme risk from combinations of cyclones, storms and floods. Between 2001 and 2015, the population in these area increased by over 450,000 people. In Victoria 17.5 per cent of the population live in LGAs which are at high to extreme risk of bushfire.

Pressure to release more land in high risk urban areas will lead to an increase in the number of people at risk. Development of high risk land should be informed by accurate data on natural peril risk and be accompanied by appropriate mitigation measures to minimise the risks.

Economic resilience, together with high levels of social capital, has been found to translate to greater resilience to natural disasters. In some places the communities at risk may not have the economic resources required to independently prepare (e.g. pay for protective infrastructure) and recover from natural disasters. For example, Moree Plains (New South Wales) and Bundaberg (Queensland) are communities at risk of flooding yet are low on the Australian Bureau of Statistics Socio-Economic Index for Areas Index of Economic Resources. Hepburn, Central Goldfields and Hindmarsh in Victoria have high risk of bushfire and also have low economic resources. These communities may not have the economic resources to make investments to mitigate against the impact of natural perils and may lack the economic resources to recover from natural disasters. Hence the economic burden will fall onto government. As such, the cost of natural disasters have become a growing, unfunded liability for government.

Governments have tended to overinvest in post-disaster reconstruction and underinvest in mitigation that would limit the impact of natural disasters. Spending on mitigation initiatives by the Australian Government represents around three per cent of what it spends on post-disaster efforts. As a general rule, one dollar spent on mitigation can be seen to save at least two dollars in recovery costs. This allocation of spending needs to be addressed. Investments in mitigation strategies reduces the cost of future reconstruction.

The Royal Commission into Victoria’s Bushfires used the expression ‘shared responsibility’ to describe how the Australia community can deal with natural peril. There is a need for a coordinated approach by all levels of government to improve protective infrastructure, emergency management roles, land use planning and building regulations to help mitigate the risk of natural perils. While there can be no subsidy to occupy high risk areas, the government may need to assist communities to help mitigate the risks in the short term. This would be most relevant for vulnerable communities which are least able to take actions to mitigate risk and rebuild. In turn, communities, individuals, business and households need be educated and empowered to take greater responsibility for their own safety.

Without heightened awareness, appropriate information and a philosophy of shared responsibility, individuals, business and government will remain at risk of future events.

View Terry's presentation from the Canberra launch event.

For more information, visit the IAG Limited website.

Read coverage of this in the Financial Review and Sydney Morning Herald.