As New South Wales and Queensland clean up after what are likely to be the costliest floods in Australian history, insurers have a stark warning — prepare for things to get worse, especially along the east coast.
As businesses with some of the most skin in the game when it comes to climate change effects on extreme weather, insurance companies are at the forefront of research about what to expect as global temperatures warm.
The multidisciplinary experts at IAG's Natural Perils team have scoured the research literature to produce detailed reports of how climate change is likely to affect the risk of natural disasters in Australia.
When it comes to flooding, a 2019 IAG report estimated that 2 degrees Celsius of warming above pre-industrial levels would increase the cost of household property average annual losses from flooding by 21 per cent, while a further degree of warming takes that to 41 per cent.
Under the 3 degrees scenario, annual losses would exceed $2.5 billion, and that is just for residential properties.
These scenarios are not far off in the distant future. Indeed, it is likely that we are feeling some effects of climate change in the recent extreme weather.
The second edition of IAG's Severe Weather in a Changing Climate report noted that global warming could reach 1.5 degrees during the 2020s and 2 degrees by 2035.
With more than 1 degree of warming above pre-industrial levels having already occurred, that report delivered this prescient warning in September 2020:
"Rainfall intensities across southern Australia have increased up to 14 per cent per degree of increased temperature, and 21 per cent for the tropical regions.
"Storm rainfall totals from both east coast lows (ECLs) and tropical systems are expected to increase significantly, leading to increased flood risk in the larger river catchments, particularly along the east coast.
"Evidence suggests that we'll likely see fewer of the less damaging types of ECLs, which normally occur over winter and spring, but we'll see an increase in the more damaging lows that typically happen over summer and autumn."
It was precisely this combination of an intense trough pulling moisture from the Coral Sea and dumping it over south-east Queensland and northern NSW and an east coast low further south that drenched the bulk of the eastern seaboard with record rains this past couple of weeks.
Recent research suggests these type of very extreme rain events may become even more extreme and also far less rare in a warmer world.
"There is an increasing body of literature that indicates that the increase in frequency and intensity of future extreme precipitation will be larger for rare events," IAG warned.
Who has the most increased risk of flooding?
It is the bread and butter of insurance companies to ask this question. It is, after all, how they price your premiums.
IAG's 2019 flood report used the company's and insurance industry's data down to the address level to estimate the likely effects of climate change on flood risk.
In percentage terms, the report forecast Western Australia would have the biggest rise in flood loses — 41 per cent at 2 degrees of warming — but that is because they are relatively rare there currently.
In dollar terms, NSW ($1.04 billion) and Queensland ($630 million) would see the biggest increase in burden from flood damage if temperatures rise 2 degrees. Remember, they are already more than a degree higher.
Likewise, already flood-prone localities with big populations are expected to continue suffering the largest losses.
Brisbane tops the list, followed by Sydney's Hawkesbury, Wollongong, Tweed, the Clarence Valley, the Central Coast (north of Sydney), Shoalhaven, Townsville, and Moreton Bay.
But the top 10 list looks very different when you examine where flood risk will increase the most with 2 degrees of warming, which may occur by 2035.
Lake Macquarie near Newcastle tops that list, with an expected 91 per cent jump in average annual flood losses.
Queensland's Gold Coast comes in second, with risks rising 52 per cent, while Shellharbour near Wollongong is third with a 49 per cent increase in risk.
The rest of the top 10 are, in order, Byron, Frankston, the Sutherland Shire, Bunbury, Noosa, Melbourne's CBD, and Tweed, where flood losses are expected to rise between 31-41 per cent.
Many of these areas have recently seen significant population growth, especially some of the regional coast locations.
Some of the nation's other hottest sea or tree change locations make the top 20 list, such as Port Macquarie, the Bega Valley, MidCoast (just below Port Macquarie), Nambucca, Geelong, the Sunshine Coast, and Newcastle.
All of these local government areas are expected to see a roughly 30 per cent increase in flood losses, potentially as soon as the middle of next decade.
It is important to note too that this is the average across the whole area, it is not evenly distributed.
A December 2020 report on Flood Risk Management in Australia by the Geneva Association of insurance companies, of which IAG is a member, showed just how concentrated this risk is.
"Approximately 7 per cent of households have flood risk, with 2.8 per cent being located in high-risk areas — that is, up to 170,000 buildings in 5 per cent Annual Exceedance Probability (AEP) flood zones," it observed.
In layman's terms, even now, 170,000 households will, on average, be flooded every 20 years or less.
Properties near the coast are especially vulnerable to the combination of rising sea levels, more intense rainfall, and storm surges.
"The areas with highest sensitivity tend to be canal estates, coastal lakes, and lagoons — areas where existing land use is strongly dependant on precise control of water levels," the report noted.
"Flood risk in these areas is highly sensitive to coastal influence under our modelled future-climate scenarios.
For example, IAG's flood report found Gold Coast properties less than 6 metres above historic sea levels were more than twice as sensitive to climate change risks than those above.
And it is not just flooding
If you are one of the 93 per cent of Australians not at risk of flooding, you may be breathing a sigh of relief.
Before you do, IAG's 2020 climate report also warned that other extreme weather events are set to affect a greater number of Australians.
"TC (tropical cyclone) frequency has declined slightly, but the proportion of intense TCs has increased markedly," IAG observed.
"It is estimated that approximately 10 per cent of all pre-industrial TCs have been category 4 or 5. Currently, nearly 25 per cent of all TCs reach this peak intensity. This rising trend would likely continue before the upper limit or 'saturation point' is reached.
"TC risks are likely to increase more rapidly in south-east Queensland and north-east New South Wales, affecting more heavily populated areas, compared to farther north.
For those areas still far enough south to be free of cyclone risk, the frequency and severity of damaging storms is likely to increase, affecting most of Australia's major cities.
"In a warmer climate, damaging hail is expected to increase for the capital cities of Sydney, Canberra, Melbourne and, to a lesser extent, Adelaide and Perth," IAG's Severe Weather in a Changing Climate report warned.
The good news here is that places further north currently subject to frequent hail storms, such as Brisbane, may actually see a decline in those events.
How does this affect insurance?
Insurance is priced on risk, which is based on the likelihood of an event happening and the expected cost of the loss from that event.
In this way, IAG's modelling suggests climate change will further widen the gap between the cost of insuring relatively safe properties and those at highest risk.
The report highlights an example where the typical home might only see an $85 increase in its average annual loss, but the 1 per cent of properties most at risk of flooding would see a $2,600 increase.
This is the kind of rise that will be priced into insurance policies, making the most vulnerable homes effectively uninsurable.
When asked this week on RN Breakfast whether the most recent flood disaster would put flood insurance out of reach for many, IAG's executive manager of Natural Perils Mark Leplastrier admitted that might happen.
But his team's work also highlighted that there are also growing risks for those not currently in a "flood zone".
"There's a general feeling that we get is that we often don't communicate the very extreme events," continued Mr Leplastrier.
"We typically talk about events up to the [flood planning control] level that we we build at, and that's often often referred to as the 100-year, or the 1 per cent, flood. The flood has a 1 per cent chance of occurring every year.
"The problem is expressing them like that makes you feel like these events will only happen every 100 years or every 1,000 years.
Another problem is that as climate change makes currently very rare events more common and pushes the probable maximum flooding, planning regulations based on historical experience may create a false sense of security.
This has been seen in the most recent floods, where some areas that had never been inundated before went under water.
"Areas with historically strong building controls are relatively sensitive to changes in flood and coastal inundation risk due to the large build-up of assets just outside 'current climate' flood planning zones," IAG's flood report warned.
This is potentially a large number of properties where, not only are new homes not required to meet flood standards such as raised floors, but where buyers need not be warned there is a flood risk.
"Around 65 per cent of properties with a known flood risk are not subject to flood-related development controls and are therefore generally not subject to flood risk disclosures," the Geneva Association report observed.
To give you an example, if your house was in a zone with a 0.9 per cent AEP and you lived there for 20 years then there would be an 18 per cent chance you would experience a flood, and you probably would not have been warned that you were at risk at all.
What can be done?
The federal parliament is currently considering a proposal to effectively underwrite cyclone risk, which is the main risk why insurance premiums across most of northern Australia are multiple times higher than southern parts of the nation.
There have been calls to extend this to cover flood insurance for vulnerable regions.
Depending how the funding is sourced to pay for such as scheme, the practical effect is likely to be that people living in relatively safe locations subsidise the natural disaster risk of those living in more naturally perilous areas.
The cost of this cross-subsidy will only rise as climate change increases weather-related damage.
IAG, and other insurers, have repeatedly argued there is a better solution, at least for new homes.
"The most cost-effective way to provide this climate resilience buffer is through land use planning and building standards — for example, by imposing additional standards on new developments (e.g. floor level restrictions) in low-risk areas which would fall outside traditional planning controls," the company's 2019 flood report argued.
Mark Laplastrier said this conversation is timely, if not long overdue.
He also reiterated the insurance industry's other main demand, which is a greater proportion of natural disaster funding going into prevention measures such as levees.
"The impacts we're seeing right now are going to be actually more costly, right?" Mr Laplastrier said.
"So the more we can put up front, the better we can actually safeguard these communities."
