The Dollar Value of Risk Reduction: Roma & Insurance

The ICA frequently refers to to benefits of mitigation, how it can compress risk based premiums. Roma, an acutely flood prone location in QLD provides a great example.

The graph below shows average home building premiums for a normalised sum-insured over time. From the graph you can see how premiums began (in 2007) to climb steeply when flood cover was introduced in Australia for the first time. Keep in mind that the graph shows the average premium, those with acute flood risks in Roma may have been paying substantially more.

Things begin to improve in 2015, when average premiums are significantly reduced in a short period of time. What changed? In early 2015 the risk of flooding to large parts of Roma was reduced through the completion of the first stage of a flood levee.

Importantly, key decision makers in Council, like Mayor Robert Loughnan at the time and CEO Julie Reitano, made sure that the insurance industry had all of the necessary data required to factor in the completion of the mitigation. Without this, reducing premiums simply would not be possible.

Stage 2 of Roma’s flood levee has now been funded by government, industry will again (when updated flood mapping is received) look to reduce premiums wherever a risk reduction can be identified.