“Build back better” should be central to insurance policies and the federal government could consider extending the cyclone pool as worsening natural disasters reduce affordability, a housing resilience report proposes.

Home premiums increased by an average of 28% in 2023, with gains of more than 50% for the highest-risk properties, and too many people cannot afford or find cover, according to the paper. 

“A policy development indication is that underinsurance, socioeconomic inequalities and escalating disaster risks require a rethinking of the sole reliance on market-based approaches, such as insurance,” the Australian Housing and Urban Research Institute report says.

“Governments, the insurance sector and other institutions need to adopt a co-ordinated approach and shared responsibility to housing recovery and reconstruction.”

Land use planning that avoids high-risk development and increasing housing resilience through building improvements are identified as key policy mechanisms.

“The rebuilding of houses after disasters is mostly funded by insurance. However, additional costs for build back better are not covered by most insurance companies,” University of NSW professor David Sanderson says.

“Developing policies that promote approaches to build back better with incentives, rather than simply replacement, should be a priority.”

Researchers from UNSW, Curtin University and RMIT University contributed to the report, which examines seven disaster case studies covering bushfires, floods and cyclones.

The report says relying solely on market-based mechanisms to build back better is not likely to deliver and while the concept is gaining political traction and being flagged in building regulations and codes, private and public barriers are limiting uptake.

New governance arrangements and mechanisms to overcome the barriers, such as “consideration of initiatives like public subsidies to top-up insurance funds” need to be considered, it says.

The report notes increasing calls, including from the insurance sector, for a more integrated approach to disaster risk reduction and recovery that better links land use planning, local mitigation, the industry, multi-level governments and communities.

The researchers say Australian Standards should develop a flood rating system, like the bushfire attack level ratings, to ensure buildings are constructed to levels required.

They also say the government should consider establishing a federal insurance scheme like that offered by the US Federal Emergency Management Agency, and expanding the cyclone reinsurance pool to other hazards could be an option.

“The Australian government should consider establishing a federal insurance scheme for those who cannot afford to pay high premiums,” Professor Sanderson said. “This will go a long way in helping Australian communities to build back better.”

Under such a scheme, government could also be required to intervene and negotiate with insurers to ensure building damage assessments are done independently and are accepted by the companies.  

Other issues covered in the report include problems with post-disaster temporary accommodation and policy considerations for buybacks and managed relocation.

The paper is available here.