The Insurance Council of Australia (ICA) has welcomed the release of terms of reference for the Productivity Commission’s inquiry into natural disaster funding.

The inquiry will analyse Commonwealth and state spending on mitigation and recovery, and examine options to achieve a better balance.

The terms of reference include consideration of the sustainability and effectiveness of current arrangements; risk management measures available to asset owners; future funding options for recovery and mitigation; and incentives to support cost-effective decision-making.

ICA and other industry groups have long argued that spending more on mitigation would serve communities better – saving lives, property and, in the longer term, money.

GM Policy Risk and Disaster Karl Sullivan told insuranceNEWS.com.au the terms of reference are “more or less spot on”.

“I don’t think anything has been missed. This has been a persistent issue and the terms of reference appropriately target all relevant concerns.”

Disagreements over who pays for mitigation work are possible, but Mr Sullivan says such debates are premature.

“I don’t think anyone really has a finely tuned grasp on how much is needed. One of the things we are working with government on is when and where mitigation is required. Only when this is established can you talk about costs.

“If we are going to flip it round to prevent, rather than pay afterwards, we will need to put an appropriate amount of money aside.

“But I strongly suspect it is not as much as some people believe, and if you take a three-decade view the cost savings will be quite substantial.”

The Australian Business Roundtable for Disaster Resilience & Safer Communities has also welcomed the terms of reference.

Speaking on behalf of the roundtable, IAG MD Mike Wilkins says changing the way we prepare for natural disasters is “in the interests of all Australians”.

“I am pleased that the inquiry will be looking at how we achieve a better balance between investment in disaster mitigation and funds spent on disaster recovery,” he said.

Last year the roundtable released a white paper forecasting the cost of natural disasters in Australia would rise from $6.3 billion a year to $23 billion a year by 2050.

It says pre-disaster investment could cut the cost of disaster response by more than 50%.

ICA and the roundtable will make submissions to the inquiry, which will release draft findings in September and a final report at the end of the year.