SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT FOR PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW RESIDENTIAL BUILDINGS

Transcription

1 SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT FOR PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW 17 August 2012

2 SUMMARY IAG believes effective mitigation of flood risk must be built on a comprehensive strategy where the primary objective is ensuring residential development does not occur in areas of unacceptable flood risk. This should be achieved through land use planning and zoning policies that are informed by comprehensive up to date flood risk mapping. Building codes that promote natural peril resilience in the built environment are also an essential component of an effective disaster mitigation strategy. We support the efforts of the Australian Building Codes Board to create a national standard for mitigating the risk of floods to new residential buildings. While IAG considers life and safety objectives of building codes to be of primary importance we believe they should be augmented by an objective to cost-effectively protect the property itself. Maintaining the amenity of a building by reducing the extent of damage caused by flood and the costs of re-instating a property damaged by flood will improve community resilience. This should be an objective of any standard included in the National Construction Code (NCC). A significant amount of research has been conducted both in Australia and overseas into flood resilient/compatible building design, construction and materials. The NCC could use this information on "best practice" to inform a general standard that could then be adapted by local authorities to meet the conditions of flood prone areas within their jurisdictions. IAG believes the scope of the proposals should also be expanded to apply, as a minimum, to residential properties that need to be completely or substantially rebuilt or repaired. Consideration should also be given to covering any additions or modifications to existing housing stock. The cost benefit analysis in the Consultation Regulation Impact Statement concluded that the proposed measures to address the risk of floods to new residential buildings would be expected to provide quantitative benefits significantly in excess of additional constructions costs incurred 1. Enhancing the proposals to include as a key objective property protection through the use of flood compatible/resilient design, construction and materials would further increase the quantitative benefits such as avoided repair costs as well as qualitative benefits including reduced social and economic disruption - to outweigh any short to medium term costs. 1 Consultation Regulation Impact Statement p 34 2 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT FOR PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

3 INTRODUCTION INSURANCE AUSTRALIA GROUP (IAG) IAG is an international general insurance group, with operations in Australia, New Zealand, the United Kingdom and Asia. Its current businesses underwrite over $8 billion of premium per annum and pay around $6 billion in claims per annum. IAG employs more than 13,000 people of whom around 9,000 are in Australia. Across our portfolio of brands IAG insures 6.9 million cars, 2.4 million homes, 92,800 farms, 121,100 employers and 375,200 businesses. IAG had more than 16.2 million policies in force in financial year IAG's Direct Insurance business provides personal insurance products as well as business insurance packages targeted at sole operators and smaller businesses in NSW, ACT, Queensland and Tasmania primarily under the NRMA Insurance brand. SGIO is the primary brand in Western Australia, and SGIC in South Australia. In Australia, IAG also has a distribution agreement with RACV (underwritten by Insurance Manufacturers of Australia owned 70 per cent IAG; 30 per cent RACV) in Victoria. Products are distributed through branches, call centres, the internet and representatives. IAG's intermediated insurance products are sold nationally, primarily under the CGU Insurance and Swann Insurance brands through a network of more than 1,000 intermediaries, such as brokers, agents, motor dealerships and financial institutions. CGU is also a leading provider of workers compensation services in Australia. 3 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT FOR PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

4 IAG'S INTEREST IN THE PROPOSAL FLOODING AND INSURANCE According to the Insurance Council of Australia (ICA) flood damage is a persistent risk to almost 7 per cent of residential addresses in Australia causing an average of $400 - $450 million in damages annually 2. The Federal Government has said the Queensland floods are likely to be the most costly natural disaster in Australia's history with Treasury estimating a total economic impact of around $9 billion 3 and the Federal Government recovery and reconstruction costs already exceeding $4 billion 4. After the floods and cyclones in Queensland, insurers received and determined just under 132,000 disaster related claims and are paying out over $3.7 billion to policyholders. To date over 97 per cent of the claims have been finalised, with insurers spending more than $9.2 million every working day to assist Queenslanders to recover 5. Natural hazards and extreme weather are core business for the general insurance industry. At its most basic, insurers underwrite natural hazard and weather-related losses by assessing the risk, pricing and then meeting claims when they arise. Insurers provide a vital service in protecting the financial well being of individuals, families, businesses and the community more broadly. The price and availability of insurance plays an important role in helping people manage their personal risk of natural hazards. First, it mitigates the financial risk of policy holders whose property is damaged by an insurable weather event. In addition, the price and availability of insurance can create an incentive for people to harden their properties against weather risk or avoid areas exposed to high weather risk. However, as outlined by Natural Disaster Insurance Review, covering flood risk creates unique challenges for the insurance industry. This is because flood risk, with appropriate resources, can be mapped with considerable certainty to defined areas and is high risk for a small percentage of residents. This is quite different to other risks, such as hail, cyclone and earthquake, which tend to be more random and affect a wider spread of the population, where insurers can spread the cost. Further, there has been historical lack of comprehensive flood risk data and accurate flood mapping available for large parts of Australia which has drastically undermined the insurance industry s ability to offer flood cover. Currently, there is no complete measure of the number of properties exposed to flooding. The National Flood Information Database, created for the Insurance Council of Australia and its members, currently has flood risk data for 5.1 million addresses in Australia. The NFID is not complete for a variety for reasons including out dated flood mapping, inconsistent approaches to the determination of flood risk, use of poor elevation data, refusal of a number of councils to release mapping or an absence of flood mapping being undertaken at all. Notwithstanding these challenges, following the Queensland and Victorian floods, IAG s operating business decided to offer flood insurance as a standard inclusion in their home and contents policies. As of January 2012 IAG s Direct Insurances business offer flood insurance as a 2 p 5 Insurance Council of Australia, Response to Natural Disaster Insurance Review Queensland Reconstruction Inspectorate Third Report Oct 2011 Feb 2012 p Insurance Council Australia (ICA) Current Disaster Statistics at March IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT FOR PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

5 IAG'S INTEREST IN THE PROPOSAL (CONTINUED) standard inclusion in all States. NRMA Insurance continues to offer opt-out flood insurance in NSW, Tasmania and the ACT for flood risk areas (about 2 per cent of customers). In NSW only a minority of flood prone customers choose to take that cover. From 1 February 2012, IAG s intermediated personal lines insurance policies automatically included cover for flood on renewal. All customers were informed that flood cover was available from 1 February IAG has determined that the best way to make sure our customers have protection and to maximise the number of people covered for flood damage is to automatically include flood cover in the premium. However this means that insurance affordability will be an issue for people whose properties are at a significant risk of flooding. Although insurance is an important mechanism for increasing disaster resilience in our communities it cannot reduce the risk of natural hazards. Only effective disaster mitigation can reduce the natural hazard risk. This includes risk mapping and analysis, effective land-use planning, comprehensive building codes, community engagement and physical infrastructure. Without such mitigation the cost of insurance is likely to rise with some locations becoming too expensive for consumers or some insurers withdrawing from a market in part or totally. BUILDING CODES AND INSURANCE Building codes are relevant to insurers for a number of reasons including assessing risk, setting premiums and rebuilding after a claim. In the context of flood, building codes and development controls have traditionally focused on reducing the impact of flood by ensuring building floor heights are above a designated flood level (generally the 1 per cent Annual Exceedance Probability 6 ). Minimum floor heights are intended to reduce the risk and extent of inundation below a certain flood level. When an insurer knows the floor height of a building is above a specific flood extent this means it can adjust its assessment of risk, and consequently the premium charged for flood cover, accordingly. However, it should be noted that it will take some time for building codes to impact on premiums. It is only when the general building stock is built to a new standard that significant changes will occur. Building codes that require the use of flood compatible, resilient and/or resistant materials or design are - where implemented and enforced - also likely to reduce the extent of flood damage to a property which will in turn reduce the cost incurred by insurers in repairing the property. Building codes will also determine how the repair or rebuild is undertaken. Having to comply with building codes may mean changing the material originally used in a building, for example, using materials other than timber in a home at highest risk of bushfire attack in a designated bushfire prone area. Reinstating a building in compliance with requirements for building in a bushfire prone area in NSW 7 is estimated to increase costs by around 30 per cent. Based on the costing analysis in the 6 The Bureau of Meterology defines Annual Exceedance Probability as the probability that a given rainfall total accumulated over a given duration will be exceeded in any one year. 7 Development on land that has been dedicated as bush fire prone must meet specific requirements under the current NSW legislative provisions. The Environmental Planning and Assessment Act 1979 establishes a system for requiring bush fire protection measures on bush fire prone land at the development application (DA) stage. Development applications on bush fire prone land must be accompanied by a Bush Fire Assessment Report demonstrating compliance with the aim and objectives of Planning for Bush Fire Protection 2006 and the specific objectives and performance criteria for the land use proposed. The State Environmental Planning Policy (Exempt and Complying Development Codes) 2008 (the Codes SEPP) were amended in 2010 so that land identified as being bush fire prone was no longer listed as a land exemption and is no longer excluded from the application of one or more codes. Instead, specified development 5 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

6 IAG'S INTEREST IN THE PROPOSAL (CONTINUED) Consultation Regulation Impact Statement (RIS) the proposed flood standard would increase the cost of new buildings in areas at risk of flooding by an average of around 5 per cent. BUILDING CODES AS PART OF HOLISTIC APPROACH TO DEALING WITH FLOOD RISK IAG s post-event analysis of building damage after a number of major natural disasters indicates there is a crucial role for government to support community resilience by ensuring that new buildings in at-risk areas are constructed to withstand hazards such as tropical cyclones, storm surge, severe storms, hailstorms, bushfires, earthquake and flood. Building codes that seek to minimise the impact of flooding on a property are an essential component of an effective multi-faceted, integrated approach to reducing the risk of flooding in the Australian community. Where this approach is implemented the role of insurance is to provide a mechanism to reduce the disruption caused by a flood event and increase the resilience of the community. We believe effective mitigation of flood risk is built on a tiered approach where the primary objective should be ensuring residential development does not occur in areas of unacceptable flood risk. This should be achieved through land use planning and zoning policies that are informed by comprehensive up to date flood risk mapping. Strategies such as relocation schemes should also be implemented for existing developments in high-risk areas. For developments in lower-risk flood prone areas - or where development in higher risk areas cannot be avoided - building codes and controls that minimise the impact of flood on homes and other buildings should be implemented and enforced. In addition, steps should be taken to encourage individuals, builders and developers to incorporate flood resilience and resistance into building design, construction and materials in flood prone areas above and beyond what is required by building codes. This should extend to retro-fitting existing buildings on a cost effective basis. Where planning, zoning and building codes cannot effectively eliminate the risk to individual homes Governments should consider building flood mitigation infrastructure such as flood detention basins, storm water culverts, back flow devices and levees subject to a cost-benefit analysis. Each tier of an effective flood mitigation strategy mapping, land-use planning, building codes and mitigation infrastructure - builds upon the other and must be overlaid by greater transparency and community education about flood risk to assist Australians in understanding the flood risk in their location and the options for reducing that risk. requirements and development standards have been added to the General Housing Code and the Rural Housing Code that apply to new development undertaken on low risk bush fire prone land. The development standards have been designed to ensure that (a) complying development is not allowed on higher risk bush fire prone land (i.e. BAL-40 or Flame Zone), (b) only a qualified consultant or the local council can endorse the BAL under the Planning for Bush Fire Protection Guidelines 2006 and (c) once the BAL is known, the council or private accredited certifier must certify that the proposal complies with AS Construction of buildings in bush fire prone land. (Source: NSW Rural Fire Service / 6 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

7 RESPONSE TO SPECIFIC PROPOSAL AND ISSUES Before addressing the specific proposal contained in the RIS IAG notes that it was represented on the expert Reference Group that assisted in the drafting of the proposed new Standard. OBJECTIVES OF THE NCC AND THE PROPOSED STANDARD IAG believes it is appropriate to have a national standard in place to address the risk of floods to residential buildings in order to provide a minimum level of assurance for the community across every Australian jurisdiction. However, we believe the proposed standard is flawed as it focuses too narrowly on the health and safety objectives of the NCC. While protecting people from death and injury is paramount, IAG suggests there is scope to enhance building standards so that they also cost-effectively protect the property itself, and its owner's financial interest, without sacrificing safety performance. This could be achieved by realigning the objectives of the NCC to accommodate a broader interpretation of 'amenity' to include reducing the dislocation and cost of repair caused by natural peril related damage. Clearly the amenity of a residential building is severely impacted when it is uninhabitable for months while the walls and floors dry out. Conversely, if flood compatible design and materials are used that reduce the time required to rehabilitate the home the amenity of the building is vastly improved. A significant amount of research has been conducted into flood resilient/compatible building design, construction and materials both in Australia and overseas There are several examples of comprehensive guidelines for specific flood prone areas 8 including the highly-regarded Guidance on Building in Flood Prone Areas produced by the Hawkesbury-Nepean Floodplain Management Steering Committee. In addition, more general or broadly applicable information about flood compatible/resilient products and flood protection services such as the UK National Flood Forum s Blue Pages 9 are also available. The NCC could use this information on "best practice" to inform a general standard that could then be adapted by local authorities to meet the conditions of flood prone areas within their jurisdictions. Some Australian local councils are already including requirements to use flood compatible materials as part of their building codes or development control plans 10 however it is not clear how robustly these provisions are being enforced It is expected that these additional requirements would be likely to generate a minor increase in the cost of building in a flood zone in the short to medium term. Consequently, consideration ought to be given to an economically viable government funded mechanism such as a subsidy, rebate or tax off-set to support the implementation of the standards. Such a mechanism should also be contemplated for encouraging those who voluntarily retrofit their existing properties to a more flood resilient standard particularly in the context of reinstatement after a flood event. IAG recognises the proposed standard could have the incidental effect of protecting the property itself and reducing the cost of repair and reinstatement to the owner through the imposition of 8 Reducing Vulnerability of Buildings to Flood Damage: Guidance On Building In Flood Prone Areas 2006, Produced by the Hawkesbury-Nepean Floodplain Management Steering Committee with contributions from the CSIRO, NSW Department of Natural Resources, The University of New South Wales (via the Australian Centre for Construction Innovation), The University of Newcastle, Granger Consulting, Coffey Geosciences, Napier and Blakeley, Macquarie University as well as several local councils. In the UK Improving the Flood Performance of New Buildings Flood Resilient Construction, Part of the Department for Communities and Local Government Buildings Regulations (Sanitation) Research Framework, and the joint Defra/Environment Agency Flood Risk Management Research and Development programme 9 The Blue Pages is an independent directory of flood protection products and services See for example, section 4.2 of the Wagga Wagga Development Control Plan data/assets/pdf_file/0016/1582/attachment-rp-3-wagga-wagga-development-control-plan-2010.pdf 7 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT FOR PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

8 RESPONSE TO SPECIFIC PROPOSALS AND ISSUES (CONTINUED) minimum floor heights. While the RIS states that some elements of property protection may result from the objective of ensuring the life safety of the building occupants it goes on to say "property protection is a limited concern" 11. Given the recent experience of the Queensland floods where property damage disrupted thousands of Australians lives and cost the nation billions of dollars, IAG believes property protection should be much more than a limited concern in developing the proposed standard. Finally, we note that the specific objectives in addressing flood risks identified by the RIS focus on protecting the "structural integrity" of the building. This includes the objective of "safeguarding people from loss of amenity caused by structural behaviour in the event of a flood". It is arguable that structural integrity of residential buildings in flood prone areas is already largely protected by the non-flood specific requirements of the NCC 12. THE SCOPE OF THE PROPOSALS LIMITATIONS The RIS clearly identifies the limits on the scope of the proposals including the category of the buildings to be covered, the type of flooding the standard is intended to enable compliant buildings to withstand and the circumstances in which the standard will apply (i.e. where a building is deemed to be at risk of flooding by the relevant local authority). While IAG understands the reasons for limiting the scope of the proposals we believe some may undermine the effectiveness of the standard in meeting its stated objectives. Building categories The standard would only apply to the design and construction of certain classes of new residential and quasi-residential (motels, nursing homes, hospitals) buildings. Commercial and other buildings would not be affected. The 2011 Thailand floods clearly illustrate the potential scale of economic disruption that can occur when commercial properties are built in flood prone areas and ill-equipped to withstand and quickly recover from flood 13. The ABCB should explore a standard to address flood risk that is appropriate for various categories of non-residential properties that also accommodates a broader understanding of the 'safeguarding the loss of amenity" objective. "New" buildings The RIS indicates that the proposals would not apply to the stock of existing residential buildings. This suggests that under the current proposals rebuilding, repair, renovations and additions to existing homes would not need to be in accordance with the new standard. IAG believes the scope of the proposals should be expanded to apply, as a minimum, to residential properties that need to be completely or substantially rebuilt or repaired. If these properties were already intended to be within the scope of the proposals this needs to be clarified. A further step would be to apply the standard to significant repair, renovations and additions to existing residential properties. To give effect to this proposal it would be necessary would need to 11 p19 RIS 12 See page 9 of the RIS regarding existing NCC requirements. 13 From the end of July 2011 severe flooding occurred in Northern, Northeastern and Central Thailand. The World Bank has estimated US$ 45.7 billion in economic damages and losses due to flooding, as of 1 December Most of this was to the manufacturing industry, as seven major industrial estates were inundated by as much 3 metres (10 feet) during the floods. Disruptions to manufacturing supply chains affected regional automobile production and caused a global shortage of hard disk drives, which is expected to last throughout 2012 (Source: Wikipedia According to Swiss Re the flooding resulted in the highest insured losses ever for a single flood event, at USD 12 billion (Source: 8 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

9 RESPONSE TO SPECIFIC PROPOSALS AND ISSUES (CONTINUED) establish a mechanism to trigger the application of the standard to reinstatement of damaged or destroyed homes. One option could be to impose the requirement where the proposed works would require the approval of council. Activation The principal component of the proposed standard is to impose minimum floor heights on residential building that are deemed to be at risk of flooding by relevant local authorities. It is our experience and general understanding that where the relevant local authorities have undertaken flood risk assessments and have an understanding of the flood prone areas in their region any effort to mitigate the risk will ordinarily begin by imposing minimum floor heights. It is the areas where less wellresourced or less diligent councils have not undertaken adequate flood risk assessments that would most benefit from the proposed minimum national standard. However, the national standard will not be applicable if they have not completed adequate mapping and therefore have not designated buildings as being subject to a risk of flooding. On a positive note, the standard will require States and Territories ensure their planning and zoning frameworks enable the relevant local authority to determine flood risk in their jurisdiction. Flood velocity Australian riverine flooding is typically low velocity. High-velocity flooding events of the kind that devastated Toowoomba and the Lockyer Valley on 10 January 2011 are very rare. We note that in an effort to provide coverage for the majority of flood events 14 the draft standard is limited to events with velocities lower than 1.5 metres per second. Given the most common scenario for a destructive flood in Australia involves low velocity but large flood depths IAG believes the scope of the standard should also take depth of flooding into account. National flood map vs local responsibility The RIS examines the following two sub-options for applying the NCC standard (a) new NCC standard to apply in flood hazard areas as designated by each local government or (b) new NCC standard to be applied according to a national flood map IAG supports the conclusion that responsibility for designating a particular location as a flood hazard area should reside with the relevant State/Territory or Local Government authority having jurisdiction. We have acknowledged the historical inadequacy of flood hazard mapping earlier in our submission. Our support for a "local approach" is underpinned by our view that flood hazard is best understood at a local level and that extensive work is being coordinated at national level to improve the consistency, quality and coverage of existing and future flood risk mapping. As part of its response to the Natural Disaster Insurance Review (NDIR) the Commonwealth announced it would commit $12million to develop a flood risk information portal, hosted by Geoscience Australia, to provide a single national access point to existing flood mapping data. The NDIR highlighted the need to improve availability and consistency of flood risk information given its important role not only in informing the setting of insurance premiums but also in emergency management, land use planning and environmental management. The Government also announced the portal would be complemented by the development of national guidelines, covering the collection, 14 p17 RIS. 9 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

10 RESPONSE TO SPECIFIC PROPOSALS AND ISSUES (CONTINUED) comparability and reporting of flood risk information. State and Territory Emergency Management Ministers have expressed their support for these initiatives 15. Given the significant financial and technical resources being invested to develop a national flood risk picture IAG does not believe it is necessary at this stage to contemplate developing another national flood map for the purposes of applying the new NCC standard. 15 At the 11 November 2011 Standing Committee on Police and Emergency Management (SCPEM) meeting in Auckland, State and Territory Ministers endorsed the establishment of the portal and agreed to expedite provision of information of existing flood mapping data for publication in the portal 10 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW

11 CONCLUSION Improving the resilience of the built environment to severe weather and natural disasters will enhance the community s economic and social resilience. IAG acknowledges the efforts of the ABCB and other stakeholders in seeking to include as part of the National Construction Code measures to address the risk of floods to new residential buildings. However, IAG believes the objective of the proposals should be revised to accommodate costeffectively protecting the property itself, and its owner's financial interest, without sacrificing safety performance. This objective could be achieved through additional requirements around the use of flood compatible/resilient building design, construction and materials in areas of flood risk. IAG also believes some of the limits placed on the scope of the proposals may undermine the effectiveness of the standard in meeting its stated objectives. IAG would be pleased to provide further discuss its views with the ACBC as the consultation on this important work continues. 11 IAG SUBMISSION ON CONSULTATION REGULATORY IMPACT STATEMENT FOR PROPOSAL TO ADDRESS THE RISK OF FLOODS TO NEW