What areas of Australia are most at risk from natural perils?

By Andrew Gissing and Foster Langbein

The Commonwealth Government recently released a National Disaster Risk Reduction Framework. A key priority of the framework is accountable decision making which includes a strategy to identify highest priority disaster risks and mitigation opportunities. The strategy is based on the principle that it is not possible to reduce all identified risks and that investments must be targeted to minimise risks with the greatest potential impacts. The Australian Prudential Regulation Authority has also recently outlined the importance of mitigation investment in increasing insurance affordability across Northern Australia. The Commonwealth Government in October announced an additional $50 million dollars annually in mitigation funding.

Catastrophe loss models can be used to develop an understanding of the relative risk profile of Australia. Catastrophe loss models are decision support systems used extensively in the (re)insurance industry to assist in pricing risk and aggregate exposure management. Risk Frontiers has developed a suite of Australian probabilistic catastrophe loss models to quantify the impacts of flood, bushfire, hail, tropical cyclones and earthquake. These hazards contribute the majority of disaster losses in Australia as shown in Table 1. Risk Frontier’s catastrophe loss models have national coverage and are comprised of hazard, exposure and vulnerability modules (read more in Briefing Note 399). The models provide scientifically based damage estimates that can be used to rank the risk profiles of different communities nationally.

To identify what areas of Australia pose the greatest risk of financial loss to insurable assets such as residential and commercial property we have used the full suite of Risk Frontiers catastrophe models (hail, flood, tropical cyclone, earthquake and bushfire) to calculate average annual losses (AAL) for each Australian postcode based on exposure information derived from the NEXSIS database. The results of this analysis are illustrated in Figure 1 from which we can identify the top 20 priority postcodes nationwide as listed in Table 2.

All the highest rated postcodes are in WA, QLD or NSW, with flood and cyclone being the most significant perils. Bundaberg (4670) is rated as the postcode with the highest AAL relative to other post codes, with its total AAL contributing 0.02% of the nation’s overall total AAL. The total AAL for Bundaberg is over twice that of the estimated AAL for 10th placed Townsville (4814) and over two hundred times greater than the lowest ranked postcode of Cooladdi (QLD) (4479). Such information about relative disaster risks is useful in determining national mitigation investment priorities.

Results can also be dissected by peril. Table 3 provides the highest rated postcode for each of the five modelled perils nationally.

Postcodes were chosen to best represent Australian towns and suburbs. Results will vary depending upon the loss metric utilised, for example a return period, AAL or probable maximum loss. They will also vary depending upon the geographic boundaries used for example post code, statistical area, local government area or electoral boundary. Using post codes ignores potential losses attributable to wider regional scenarios. For example, potential losses due to flooding in the Hawkesbury-Nepean Valley are greater than just the post code of Windsor and are said to be the greatest nationally by the insurance industry. Such comparison of wider scenarios could be considered in a future analysis.

Understanding Future Risk

Risks are likely to change into the future due to climate change and urban development and future mitigation investment decisions should consider this. Risk Frontiers’ catastrophe loss modelling framework is ideally suited to consider influences on future risk such as climate change, mitigation investment, increased development and changes to building codes. The Geneva Association, a peak insurance industry think tank, concluded that by combining catastrophe models with latest climate science an enhanced understanding of future weather-related risk impacts could be developed. Such use provides greater insights into the impacts of climate change on natural hazards not currently possible using Global Climate Models.

More information on Risk Frontiers catastrophe loss models can be found here.