SUBMISSION ON THE DRAFT VICTORIAN FLOODPLAIN MANAGEMENT STRATEGY 15 August 2014 1
EXECUTIVE SUMMARY EXECUTIVE SUMMARY IAG welcomes the opportunity to provide feedback on the Draft Victorian Floodplain Management Strategy. We support the holistic approach to floodplain management advocated in the Draft Strategy and the four key objectives underpinning the strategy. We also note the Strategy is largely consist with the new national guidelines on best practice in floodplain management Managing the Floodplain a guide to best practice in flood risk management in Australia Australian Emergency Management Handbook 7. In particular we commend the proposed policies and actions on sharing flood data with insurers. We consider this best practice that should be followed by other agencies both within Victoria and in other jurisdictions. To enhance the effectiveness of this policy we suggest that Proposed Action 17a specifically refers to digital/gis information for flood mapping as well background/raw datasets for elevation data. DEPI (and its predecessor the Department of Sustainability and Environment or DSE) already has a strong track record of sharing flood risk related data including digital elevation data and geospatial information system (GIS) flood mapping data with IAG and the insurance industry more broadly. We have worked with DEPI to ensure our assessment of risk in flood prone Victorian communities is based on best available data and is as accurate as possible. For example, after DSE gave IAG access to GIS flood map data for Benalla in North East Victoria we were able to reduce average flood premiums for the 5,000 affected addresses by 44%. IAG will continue to support DEPI in implementing the policy and specific actions including sharing our own data, analysis and expertise. We also look forward to working with DEPI on expanding the range of information that may be made available to industry including floor heights and building attributes. IAG also supports the following policies, actions or accountabilities subject to some modification or enhancements: Ensuring all future flood maps will provide an understanding of the impact of a range of floods, including relatively small and frequent events up to very large and rare floods, as well as major, moderate and minor flood levels where defined. Under the draft Strategy DEPI will ensure all new government funded flood maps include information from 20% to 0.1% AEP and rarer floods where appropriate. We recommend that flood maps should ideally also include information about the Probable Maximum Flood. Integrating the two existing databases - Victoria Flood Database (VFD) and Melbourne Water s Flood Database (MWFD) - to provide Victorians with a single point of entry to readily accessible authoritative records of flood data in Victoria. This will assist all stakeholders in having a shared understanding of flood risk for any given address in Victoria. The integrated database would ideally host GIS data that can be downloaded by stakeholders such as insurers this would enable more efficient access to information when it becomes available. Develop a process to provide for existing flood mitigation infrastructure to be implemented as Water Management Schemes. We suggest the information on the condition of the structure and the protection it offers could be added to the flood database with information accessible to
EXECUTIVE SUMMARY (CONTINUED) all interested stakeholders. Alternatively it could be part of the arrangement contemplated under Proposed Action 17a Ensuring individuals can have full disclosure of the flood risks associated with their property - not just information relating to the 1% AEP flood and working with DTPLI and Consumer Affairs Victoria to ensure flood risk information is included on vendor disclosure statements in the future. IAG suggests reviewing the following proposals to ensure planning and construction standards can accommodate the unique circumstances of different flood prone communities and preserve the benefits of mitigation for as long as possible: Retaining the 1% AEP flood as the design flood event to regulate new development and construction standards in Victoria. While we understand it may be an appropriate measure for a many catchments using this measure may not be effective in reducing the vulnerability of property to flood damage in some flood prone areas. Where there is potential for significant damage above the 1% AEP event flood premiums may remain high. We believe there should be flexibility in State and local planning policies support the use of controls for development above the 1% level in such circumstances. Allowing planning controls for areas behind levees designed to protect these areas against a 1% AEP flood to be lowered. Gold Coast City Council created a resilience index to demonstrate the value of maintaining controls behind levees or where risk is otherwise reduced. The Council s decision not to lower flood planning levels following the raising of the Hinze Dam wall in 2012 extended the benefit of flood protection beyond 2060. While there are other interests to balance we believe the benefits will generally outweigh the costs. 3
INSURANCE AUSTRALIA GROUP IAG is the parent company of a general insurance group with controlled operations in Australia, New Zealand, Thailand and Vietnam, employing more than 15,000 people. IAG has more than 762,000 shareholders and its share register is the fourth largest in Australia. Its businesses underwrite over $11 billion of premium per annum, selling insurance under many leading brands, including: NRMA Insurance, CGU, SGIO, SGIC, Swann, WFI and Lumley Insurance (Australia); NZI, State, AMI and Lumley Insurance (New Zealand); Safety and NZI (Thailand); and AAA Assurance (Vietnam). IAG also has interests in general insurance joint ventures in Malaysia, India and China. In Victoria IAG also has a distribution agreement with RACV (underwritten by Insurance Manufacturers of Australia owned 70% IAG; 30% RACV). Across its portfolio of brands IAG insures 8.4 million cars, 2.9 million homes, 103,000 farms, 123,000 employers and 408,900 businesses. OUR INTEREST IN THE STRATEGY In early 2012 IAG expanded flood cover to all our home and contents policies following the major floods in Queensland and Victoria in 2011. In Victoria we offer flood cover as a standard inclusion in home buildings policies under the CGU and RACV brands. Prior to the 2011 floods many insurers did not offer flood insurance. This was largely due to a lack of adequate information about flood hazards on a national scale. As at July 2014, around 93% of all home building insurance policies in Australia include flood cover. Flood insurance is an important part of risk management arsenal as it allows residents to transfer the financial risk of flooding to insurers. This also eases the economic burden of post-flooding recovery on all levels of government. However insurance in and of itself - cannot reduce the risk of damage to property caused by flooding. More importantly, it cannot compensate for the disruption to a community and the emotional impact of flooding. Only a holistic floodplain management strategy underpinned by significant financial and political investment can deliver the best outcome for communities. The draft Strategy recognises the importance of having comprehensive and up-to-date flood risk information as the foundation of effective floodplain management. Similarly, flood risk related information and data is pivotal for insurers to accurately understand the impact of flooding on properties and reflect this understanding in flood insurance premiums. IAG offers home insurance premiums to consumers based on our understanding of what might damage their home or contents, how often it might happen and how much it would cost to fix the damage or replace an item. This takes into account a property s exposure to weather events or natural disasters like storm, cyclones and flooding.
Flood is quite different to something like a burst water pipe. Burst water pipes could happen in any house and there is more or less an equal chance that any one of our customers could make a claim for damage. We know that flood only affects some properties and how it can damage a property is very different depending on a number of factors including: the elevation of the land the property is on, the elevation of the property itself and the floor height, the location of a property on the parcel of land, the number of storey s of the property, the existence of a flood levee conforming to accepted engineering standards; and building materials IAG has heavily invested in understanding how flood affects millions of properties across Australia including Victoria. This is so we can assess when and how each individual property might be damaged by flood. To develop a complete picture of how flood might affect a property we use information from many different sources including council flood maps and studies where available, state and federal government mapping and address information, terrain and watercourse mapping and claims information. We continually update and improve our information. Our aim is to make sure our assessment is as accurate as possible and that this can be reflected in our premiums for flood insurance. Taking a household approach to flood insurance pricing means that insurance premiums send a price signal (at times the only signal) to property holders regarding the level of risk they are exposed to. Having access to the best quality flood risk information will almost always lead to both decreases and increases in flood insurance premiums. However, the better the quality of information we have, the better our ability to offer our customers a premium that accurately reflects their individual property s circumstances. Where we do not have access to the best available data we have less confidence that our customers are not paying for cover they don t need or paying more than their risk warrants. We acknowledge that the extension of flood insurance as a standard cover throughout Victoria in combination with household pricing for flooding has resulted in high insurance premiums for some residents. As noted in the draft Strategy, managing and reducing the impact of flooding has clear economic and social benefits for both existing and future communities. Improving resilience and decreasing vulnerability to protect communities from the destruction caused by flooding has to be the primary objective of any floodplain management strategy. However a further benefit is reduced insurance premiums for flood cover where there is a residual risk that has not been entirely eliminated through land use planning, development controls, building codes and mitigation infrastructure. The widespread availability of flood insurance in Australia has created a new dimension in flood management the role of insurers in informing understanding of risk and decision making around planning, building codes and mitigation. IAG would like to work with DEPI to explore how we might be able to provide insights based on our data and experience. For example IAG recently assisted Rockhampton Regional Council with an analysis on the likely impact of the proposed South Rockhampton flood levee on the flood component of home insurance premiums. 5
Proposed South Rockhampton flood levee: analysis of flood insurance premium impact SUMMARY NRMA Insurance and CGU Insurance offer flood cover as a standard inclusion in their home and contents insurance policies. Insurance premiums for flood-prone properties are comprised of a standard premium plus an additional flood component, which is calculated based on the expected flooding frequency (how often a property is likely to be flooded) and depth (how high the flood will be) at each individual address. Our analysis shows: the levee would decrease the flood component of premiums for approximately 1,250 properties in Rockhampton, Port Curtis, Depot Hill and Allenstown; the potential premium reductions are greater for those homes currently at higher risk ie protection from the most damaging and frequent floods; NRMA Insurance customers could see reduction to the flood component of their premium of between 11 per cent to 76 per cent; low flood risks could see 11.5 per cent reduction in flood premiums medium flood risks could see between 30 to 35 per cent reduction in flood premiums high or extreme flood risks could save between 58 to 76 per cent of flood premiums These risk assessments and premium reduction estimates are based on the best available information as at 19 May 2014. There are other factors that contribute to premium values apart from flood. As such, not all NRMA Insurance customers would necessarily see a reduction in their total premium. ASSESSING FLOOD RISKS AND SHARING INFORMATION Flood risk metrics Proposed Policy 7a IAG supports proposed policy 7a however we recommend the policy mandates or at least encourages in the strongest possible way that all future maps include modelling of an extreme flood scenario or Probably Maximum Flood (PMF). To calculate flood premiums as accurately as possible insurers need to understand design events between 10% Annual Exceedance Probability (AEP) and the PMF. As a minimum, insurers require information about at least one event greater than the 1% AEP. This can equal anything to or less than 0.2% AEP. Where insurers do not have information about the PMF or a flood event greater than the 1% AEP there will be circumstances where we need to assume that properties outside the 1% AEP have some level of flood risk which may not be accurate. 6
Sharing Flood Risk Information Accountabilities 8a and 8b; Proposed Action 8a IAG supports Accountability 8a on flood map standards while reiterating the above recommendations on ensuring all future maps include the PMF or at least one design event about the 1% AEP. We also strongly support accountability 8b and proposed action 8a on flood databases noting the Strategy states information in the databases is available in geographic information system (GIS) formats. To ensure the proposed integrated database is as functional as possible we also suggest including a commitment to make GIS readily accessible or downloadable via the integrated database for use by stakeholders like insurers. Restrictive licensing conditions have proven to be a significant challenge for insurers who want to use flood maps and related GIS data to inform their pricing for flood premiums. While this has been less of an issue in Victoria than in other jurisdictions we recommend the Strategy addresses the following to provide a model for best practice: confirm that all intellectual property resulting from government-funded studies become the property of the government; propose terms which would allow government-funded studies to be freely accessible to all, under the least-restrictive licence terms practicable (for example Creative Commons Attribution License or CC-BY); For these terms to extend to ALL intellectual property generated by these studies (i.e. including flood models, flood hazard GIS data etc) IAG supports the development of the Australian Flood Risk Information Portal (AFRIP) as an important mechanism for improving the accessibility of flood risk information on a national basis. Accordingly, we recommend including a commitment in the Strategy to ensure the integrated Victorian database is compatible with the AFRIP project. This is consistent with commitment in Strategy to align with national approaches (see pages 14 through 16). These issues are also relevant to Proposed Policy 17a and Proposed Action 17a specific to flood insurance. AVOIDING OR MINIMISING FUTURE RISKS Mitigating flood risks through planning and building Proposed Policy 10a 1% AEP planning level IAG does not support the proposal to adopt a blanket approach to planning controls based on the 1% AEP flood event. We believe there should be flexibility in state and local planning policies to support the use of controls for development above the 1% design event where consideration of the specific flood risk demonstrates that it is appropriate. In 2007 the NSW Government mandated the the 1% AEP flood is used for planning purposes and that no controls on residential development could be imposed above this other than in exceptional circumstances. This approach has unnecessarily restricted local government s capacity to take a merits based approach to flood management without a clear economic or community benefit. 7
On this issue we refer to and endorse the submission of the Floodplain Management Association. The Building System Proposed Policy 10d: flooding provisions of Building Code of Australia IAG acknowledges the Victorian Government and other stakeholders in supporting and seeking to implement measures to address 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. 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 including the highly-regarded Guidance on Building in Flood Prone Areas produced by the Hawkesbury-Nepean Floodplain Management Steering Committee 1 We recommend the Strategy includes proposals that build upon the flooding provisions of the Building Code Australia and include cost-effectively 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. REDUCING EXISTING RISKS Flood mitigation infrastructure planning controls behind mitigation structures The Strategy suggests that it is acceptable for planning controls to be lowered or removed in areas behind a levee designed to protect these areas against a 1% AEP flood (see Accountability 13b page 36). We do not support this policy and recommend that it be reconsidered in favour of a merits based approach that considers the risk of overtopping as well as the longer term benefits of maintaining planning controls. On this issue we again refer to and endorse the Floodplain Management Association s submission. We also believe the decision taken by the Gold Coast City Council following the raising of the Hinze Dam wall in 2012 provides a useful case study on the benefits of retaining planning controls. 1 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.http://www.ses.nsw.gov.au/content/documents/pdf/resources/building_guidelines.pdf 8
CASE STUDY Gold Coast City Council s (GCCC) FMA NMRA Insurance Excellence Award winning project aimed to reduce the impact of current and future floods within the Nerang River system and ultimately challenged conventional thinking on flood planning in Australia. Following the raising of the Hinze Dam wall in 2012, the GCCC was expected to comply with traditional flood planning laws by lowering flood planning levels downstream of the Dam. GCCC wanted to ensure the resilience gained by raising the dam wall was not lost in the following years and conducted research which revealed the long term benefits in keeping planning levels as they were. GCCC also developed a Resilience Index to better explain and communicate their findings (see figure below). Through the use of evidence-based research and community consultation, the GCCC gained the support of the community, who chose not to lower flood planning levels. By showing leadership and engaging with the community, the flood protection offered to the communities surrounding the Nerang River will extend beyond 2060. Had planning levels been lowered, the benefit of raising the dam would have been relatively short-lived. Bringing existing infrastructure into formal management arrangements Proposed Action 13b IAG supports and commends the proposed actions aimed at improving the understanding, maintenance and oversight of existing flood mitigation infrastructure. We further recommend that information collected particularly information about the condition and standard of protection offered by infrastructure is added to the integrated flood database with information accessible to all interested stakeholders. Alternatively it could be part of the arrangement contemplated under Proposed Action 17a (see below). 9
MANAGING RESIDUAL RISKS Flood insurance Proposed Policy 17a and Proposed Action 17a IAG commends the proposed policy and actions on sharing flood information with insurers. We consider this best practice that should be followed by other agencies and jurisdictions. To enhance the effectiveness of this policy we suggest that Proposed Action 17a specifically refers to digital/gis information for flood mapping as well background/raw datasets for elevation data. IAG acknowledges that DEPI (and its predecessor the Department of Sustainability and Environment or DSE) already has a strong track record of sharing flood risk related data with IAG and the industry more broadly. We have worked with DEPI to ensure our assessment of risk in flood prone Victorian communities is based on best available data and is as accurate as possible. As noted above, being able to use the high quality flood hazard and digital elevation data in our flood risk analysis reduces the likelihood that we will overprice or underprice flood premiums. IAG has been able to reduce flood premiums by an average of 7% when we are provided with access to the best available flood hazard data. There are some areas where the decreases are much more significant. For example, IAG has been able to reduce average flood premiums for 5,000 addresses in Benalla in North East Victoria by 44% after DSE gave us access to digital flood mapping data. It must be emphasised that these are averages. Flood premiums can vary quite dramatically between individual properties due to specific pricing factors. Creating greater consistency between government and insurer understanding of risk in the local community also reduces confusion and debate among residents improving the ability of all stakeholders to work together to address the underlying risk. This is relevant to the disclosure of flood risk information considered below. IAG will continue to support DEPI in implementing the proposed policy and specific actions including sharing our own data, analysis and expertise. We also look forward to working with DEPI on expanding the range of information that may be made available to industry including floor heights and building attributes. Disclosing flood risk information Proposed Policy 18a and Proposed Action 18a IAG welcomes the proposed policy to ensure that individuals can have full disclosure of the flood risks associated with their property, not just information relating to the 1% AEP flood. We also endorse the proposed action to include comprehensive flood risk information on vendor disclosure statements in the future Accurate flood information should be available to the public in a form which allows individuals to easily understand the vulnerability of their property to flooding including events greater than 1% AEP. This level of transparency is essential in reducing consumer confusion and encouraging people to take steps to manage their risk (such as understanding the flood risk of a 10
property they are buying and purchasing appropriate insurance cover). It would also assist local and state flood management authorities making decisions about mitigation measures, planning and building standards and ensure consumers were more aware of the likely impact of their geographical location on costs such as land value and insurance premiums. The online Flood Check Property Report run by Moreton Bay Regional Council in South East Queensland is a particularly good example flood risk disclosure. The service is available free from the council s website and shows flood levels for a range of events. In NSW mandatory vendor disclosure certificates (commonly known as section 149 certificates as there are issued under section 149 of the Environment Planning and Assessment Act 1979) are only required to include information about whether a property is subject to a flood related development control. From our discussions with NSW local governments and our own experience with customers, it seems a significant number of people misinterpret an absence of planning controls as an indication that their property is risk free. However, many properties not subject to development controls will still have a flood risk that will be reflected in their home insurance premiums. This creates confusion as residents try to reconcile these messages. It can also create an administrative burden for councils as they have to provide additional information to their residents which may not then result in a reduction of premium. The misapprehension can also lead to people deciding not to take out flood cover as they rely on their section 149 certificates as the source of truth on their flood risk. Accordingly, we would support any efforts to ensure residents are not misled and understand there may be further risk. We believe the Strategy s proposed approach will be a powerful mechanism for informing residents and creating a common understanding of flood risk within a community. This approach should also be supported by comprehensive flood risk and resilience education or awareness programs that include a component tailored to the needs of specific communities. IAG through its NRMA Insurance business recently piloted a flood awareness seminar in partnership with local councils, the Floodplain Management Authority (FMA) and NSW State Emergency Service (SES). The pilot aimed to offer comprehensive information on insurance cover, disaster preparedness and recovery and flood plain management to empower residents to take steps to manage their personal risk. IAG businesses have also been involved in a number of natural hazard education initiatives including a web-based learning resource for high school students on disaster preparedness and insurance through the Australian Financial Review on-line platform and the Queensland Government s Get Ready Campaign. We would be pleased to provide further information and explore opportunities to partner with the Victorian Government on education initiatives. 11