Adrian Katschke made a deal with himself in 2017 after floodwaters subsided from the shop he owned in Lismore: If he could go at least five years without any more flood damage, he'd earn enough to break even on repairs.
"We made a decision [in 2017], owning the property, that it wasn't worth paying the increased [insurance] premium for flood plus the increased excess," the former insurance broker says.
The now 70-year-old says he was able to recover and repair his property himself, so paying a $6,500 premium and a $5,000 excess every year after that for a $36,000 fitout didn't feel necessary.
"That was my five-year plan. If we didn't get a flood in five years, I was ahead. And if we got a flood in five years, I was behind."
Then the 2022 rain bomb hit Australia's east coast.
"This flood … was 4.4 metres from the ground floor in the arcade. It took out all our ceilings, air conditioning – it took out everything. It just wiped out [everything] through the ground floor," he says.
In the end, Katschke had to rebuild.
"The unique nature of the 2022 flood, compared with previous floods … was just miles worse beyond any [comparison] of the 1974 floods."
The worst is yet to come
Insurance coverage is not fair and equal across Australia.
According to a 2022 estimate, one million Australians are already under extreme insurance stress, paying on average almost two months of their pre-tax income on insurance premiums.
Flood insurance in the NSW's Northern Rivers region demonstrates this crisis, with reports of yearly premiums reaching five-figure sums in the area, or otherwise not offered at all.
"I've heard of premiums for residences in Lismore being $15,000. It's just not reasonable," Katschke says.
Unfortunately things are set to get even worse. Insurance is expected to become less accessible, with a 2022 Climate Council report predicting that one in every 25 homes will be uninsurable by 2030.
The main reason is climate change. In 2022, researchers from the Belgian university Vrije Universiteit Brussel concluded that those born in 2020 will face more than 10 times the amount of heat waves across Africa, Asia and the Middle East as those born in 1960.
And if global temperatures increase by 2 degrees, 177 million more people will suffer from water scarcity, while an extra 62 million people will experience severe droughts.
So, with the expected cost of natural disasters predicted to reach $73 billion a year from 2060 onwards in Australia, this insurance inequity raises concerns about those who are financially vulnerable.
Katschke says, while it's not unreasonable for insurance companies to be financially averse to insuring for floods in the Northern Rivers region, he believes the solution for those affected could be more government involvement, such as paying the first part of an insurance claim.
"It's called an excess layer. The insurers could accept an excess layer above the additional payment that the government agrees to pay. So I think there's a solution."
Professor Paula Jarzabkowski agrees the solution is shifting away from relying on the private sector.
"If we take it that already one in 10 couldn't afford insurance … In that sense, I think we'd really have to start facing that," the professor of strategic management at the University of Queensland's Business School tells ABC RN's The Money.
Rainy day fund
Professor Jarzabkowski says one option Australia could take is to pool resources ahead of time, something known as anticipatory funding.
The World Bank's Caribbean Catastrophe Risk Insurance Facility, which sets aside a catastrophe fund for 23 countries, is one example of having funding ready for deployment in the case of a natural disaster.
She says at the moment, some of those who are affected by environmental disasters in Australia have to wait up to 18 months to receive a payout.
"But you want the money immediately," she says.
Another form of preparation is insurance pools established by the government that address the fallout of natural disasters.
In the 1940s, New Zealand developed the New Zealand Earthquake Commission after "the private sector insurance really didn't want to cover earthquakes", Professor Jarzabkowski explains.
"In that sense, they'd already dealt with this notion that there was a retreat from private sector insurance and put in place what's called a 'risk pool'."
A version of this was introduced in Australia with the North Australia Cyclone Reinsurance Pool, which was created in July 2022.
"Cyclone [insurance] has become, in Northern Australia, unaffordable or unavailable for many small businesses, and for many householders."
Professor Jarzabkowski says this reinsurance pool could be extended to other states who suffer from climate-change related damage.
Reinsurance is insurance for insurers in disasters.
"What are we going to do about those people because they will not be able to afford insurance after this? We could look at some form of reinsurance pooling — there are strengths and weaknesses of that," she says.
"But certainly, if we don't want people not to have insurance, then we need to start deciding what we're going to do."
Professor Jarzabkowski says measures like this could potentially reduce costs of insurance premiums while also protecting the uninsured following a disaster in both the short and long term.
"Increasingly a number of people in Australia have unaffordable or unavailable premiums for particular types of disasters, in particular flood [insurance] because of what's happened over the last 12 months."
"If you aren't insured, you struggle to get a mortgage. You fall outside the financial safety net that we all take for granted, which is: You have a home, you get it insured, if there's damage, it can be reconstructed."
Protection gap entities
Professor Jarzabkowski says other insurance pools also exist, such as "protection gap entities" (PGEs), which operate between the government and the private sector.
"It means that everybody who buys their insurance policy, the disaster component of that goes to this PGE, which is run by the government," she explains.
"The advantages of it [are] … it diversifies all the risks across the entire society. And it diversifies across all the possible disasters."
PGEs exist around the world, including in Switzerland, Spain and France, and they provide consumers a mandatory flat rate dependent on a property's value. "When a country is that well insured, it's very robust against disaster."
Considering how common insurance stress is in Australia, a PGE would spread the risk, ultimately benefiting everyone, she says.
"We make sure that people, before the disaster happens, know [that] the money will flow afterwards."
Knowing where to build
Yet while insurance can help offset the financial loss from natural disasters, Professor Jarzabkowski says it doesn't address the root cause of the natural disaster problem.
"When a great swathe of an area is destroyed, as we had in Darwin with Cyclone Tracy, you have an opportunity to rebuild from the ground up in a different way. But of course, that's expensive."
She says a key conversation is being aware of where and how we build, rather than allowing insurance coverage to mask the wider problem.
"That's what's happened in the US. The National Flood Insurance Program has masked and allowed rebuilding in places that kept getting flooded."
Professor Jarzabkowski argues we must consider managed retreats from areas we know aren't insurable.
"We just really need to make these things servants of climate adaptation, not [allow] masking the problem of disaster."
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