IAG has detailed the impacts of natural disasters on small businesses and called on the government to increase security for regional communities against severe weather events.

Its report, titled “The backbone of regional and rural economics: small business and community resilience,” looks at the economic impact of notable events, including the 2019 Townsville floods and the 2019/20 summer bushfire season, as part of its analysis.

IAG, in conjunction with research partner SGS Economics, estimated that between 65% and 72% of the total economic impact from the floods and bushfires were felt by small businesses, with economic costs for regional enterprises of more than $1.5 billion for both events.

The insurer says adequate protections are needed to support small businesses in regional areas after the report found local firms held average contributions of 75% to the GDP in “Black Summer” regions and 65% in the affected Townsville region.

EGM of IAG subsidiary CGU, Damien Gallagher, says key findings in the report highlight the importance for governments to play a more active role in building adequate natural disaster protections for communities that rely on small businesses for significant economic output.

“We know natural disasters will continue to increase in prevalence due to a warming climate. Research shows that a dollar spent on mitigation can save at least two in recovery and reconstruction costs,” Mr Gallagher said.

“It’s critical that we now see governments identify and invest in mitigation activities, as well as stronger building codes and improved land use planning.”

The report notes an Australian Competition and Consumer Commission survey of 75 small businesses following the Townsville floods that found that more than 60% of impacted stores needed to close or reduce operations, with nearly 20% interrupted for longer than six months.

The survey found underinsurance to be a significant issue, with only 44% of small business owners with flood cover also having business interruption cover.

Another concern raised was the risk awareness of owners, with 67% of small businesses believing their firms were not in flood zones and another 20% opting against flood cover because their operations were not on a ground floor or basement.

IAG says the findings displayed the importance for businesses to be adequately covered and advised owners to clearly understand all potential hazards and ensure they are appropriately insured to assist with recovery after disaster events.

“Insurance payouts for claims and recovery activity provide an economic stimulus that speeds up the rate of recovery for regional economies and limits further losses of economic activity,” the report said.

Click here to read the report.