Who will bear the financial risk of climate-related disasters?

The financial risk is huge. The total cost of the current fires - which have already burnt 25 times the area of the Black Saturday fires - has been estimated at around $230 billion. This includes tangible and intangible costs. Tangible costs include the human lives, homes, schools, businesses, infrastructure (electricity and telecommunications, for example), vehicles, crops, fodder, and farm animals (100,000 sheep alone on Kangaroo Island and 25,000 animals on the mainland) that have been lost and destroyed. This is without counting the cost of the 1.25 billion native animals and hundreds of billions of insects which are estimated to have died, or the lost ecosystems.

They apparently have no economic value unless they are going to be traded to permit development. Apparently we can work out their economic value, it's just that no one has drawn this link before now. As for the intangible social costs, the Australian Business Roundtable in 2016 found that for the Queensland Floods the social impacts outweighed the direct financial impacts ($3.9 billion to $3.1 billion) and for the 2009 bushfires ($7.8 billion to $6.7 billion). So who is going to foot the $230 billion bill?

Climate extremes now expose the limitations of government and insurers to meet these costs. Let's talk first about governments. Governments have a duty to citizens to reduce exposure to the risk before it occurs, and to provide post disaster assistance. However, in the case of these bushfires, we read reports of how no substantial action was taken by the Morrison government over the past 18 months to implement the 2018 National Disaster Risk Reduction Framework, and that Scott Morrison ignored the warnings about the impending bushfire disaster.

The adequacy of state government actions will emerge in the upcoming bushfire inquiries. With regard to post-disaster payments, after assessing schemes in Australia, the United States and the United Kingdom, it is concluded that these are woefully inadequate. The same is true of the Australian government's $2 billion committed to disaster recovery.

What about insurance? On the one hand many property owners are not insured and, on the other hand, insurers have issued embargoes on providing insurance in bushfire-ravaged areas. Despite this, insurers have sought to reassure the public that they have the capacity to cover the current bushfire insurance costs - but, given the low level of insurance, only a small proportion of these losses will be covered.

To ameliorate this kind of situation, the United States government, for example, offers government-sponsored flood insurance. But this is also not a fail-safe. Hurricane Sandy was so catastrophic that only $20 billion of the $75 billion in losses were insured, and after that the Metropolitan Transportation Authority was unable to get insurance or reinsurance for the New York subway. So it had to go to the capital markets for a world-first $US200 million storm-surge catastrophe bond, known as MetroCat Re Ltd. Series 2013-1. Following the 2014 winter floods in the United Kingdom, the government and insurers entered into a reinsurance partnership to try to cover the future cost of floods over a 25 year period.

The crisis of underinsurance and affordability in Australia was comprehensively dealt with by the 2011 Natural Disaster Insurance Review. We need to know whether the recommendations were implemented - and if not, why not.

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Given the scale of the estimated $230 billion bushfire costs, and the inadequacies of government and insurance as compensation vehicles, our attention turns to social security payments. Do they compensate disaster victims? No, they do not. They are a very austere "safety net" for a few people. Access is by the "rough-and-ready" test of whether people reside in designated geographic areas. High thresholds of loss apply.

The 13-week Disaster Recovery Allowance for loss of employment or other income is pegged to not exceed the already below-the-poverty-line rate of the unemployment payment (Newstart) - lower still if you're under 22. Its special "calculator" (a ministerial instrument) cuts it again to just the gap between that amount and any other income still received (only direct disaster-insurance income protection is ignored). Vulnerable people already on a welfare payment stay on it, though mutual-obligation requirements are suspended, but their losses compound their impoverishment. The one-off lump sum "recovery" payment of $1000 plus $440 for each child is restricted to the declared areas, and is contingent on passing a stringent test of being "adversely affected".

Missing out on these payments leaves the meagre "crisis payment", if claimed within seven days (no extension) to cover catastrophic losses. Charities providing in-kind assistance and vouchers received $40 million from the $2 billion recovery fund administered by the National Bushfire Recovery Agency, but most of the fund is directed at re-establishment or other indirect support of victims.

Clearly government needs to shoulder more responsibility for compensating victims of disasters - especially those already vulnerable. How and whether our native wildlife and ecosystems will ever recover and who will bear that cost is an unfolding crisis. The $40 million included in the government's bushfire recovery package and the funds raised by non-governmental organisations are only the start.