We’re also located in world’s most disaster-prone region. The Asia Pacific was hit by two out of every five of the 335 disasters recorded worldwide in 2017 and suffered 58 per cent of disaster-related deaths, according to the Red Cross.
The headlines typically focus on the insurance losses caused by property damage following a calamity like the Townsville floods.
A recent report by consultancy SGS Economics and Planning for insurance company IAG tallied the insurance losses in Australia due to natural perils between 1970 and 2013.
During those decades storms caused the greatest losses (27 per cent of the total) followed by hail damage (21 per cent), floods (18 per cent), tropical cyclones (18 per cent) and bushfires (10 per cent).
But there’s a difference between insurance losses due to extreme weather and the broader economic cost. Insurance losses following natural disasters only capture the losses accruing to insured assets such as homes, motor vehicles and business premises. That’s only part of the story.
The disruption caused by disasters changes the way businesses and consumers behave, sometimes for an extended period, causing losses to production that never show up in insurance claims.
Businesses may be forced to close, at least temporarily, meaning they miss daily takings. Employees may not be able to reach their workplaces, and factories are idle without raw materials.
Depending on the scale of the natural disaster, some families may choose to leave the devastated region rather than rebuild. This loss of population then impacts the economy in the longer term.
Sometimes extreme weather events interrupt economic activity and drastically change consumer behaviour even though there is little damage to property.
The polar vortex that brought freezing weather to North America last month was a prime example – on some estimates the disruption caused by the cold weather clipped at least US$5 billion from America’s economic output.
Professor Frank Jotzo, director of the Centre for Climate Economics and Policy at the Australian National University, says climate science shows Australians should expect more frequent, and more intense, extreme weather events due to climate change. He warns the effects of climate change will drag on the economy in two ways.
First, the destruction caused by more frequent extreme weather events, especially to public infrastructure, will require capital and labour to be diverted to rebuilding things we already have rather than creating new productive assets.
“It means we have to invest resources in things that don’t give us an additional economic output,” says Professor Jotzo.
Second, climate change will take a toll on productivity. One obvious example is the impact higher average temperatures and shifting rainfall patterns will have on agricultural production.
The health of employees, especially in cities, will be affected by more frequent and long-lasting heatwaves and that means more work days lost to illness.
“Heatwaves mean people are under greater stress and more prone to ill-health,” says Jotzo. “That’s a direct hit on the economy.”
Because the long-term impact of climate change is unpredictable it also imposes what Jotzo calls an “uncertainty cost”.
One example is the construction of expensive desalination plants in some parts of Australia, including Sydney, to guard against the possibility of drought-induced water shortages.
“There is no benefit to these plants other than risk mitigation,” says Jotzo.
Economist Terry Rawnsley, who authored the IAG study on the economic impacts of natural disasters, says complex transport systems in big cities like Sydney and Melbourne are especially vulnerable to extreme weather events.
“Recently public transport systems in Sydney and Melbourne have experienced delayed services due to heavy rains,” he says.
“Heavy rainfall also impacts the road network via reduced speeds, areas of flooding and more accidents. Air travel can also be heavily impacted by storms. This does not significantly damage the infrastructure but disrupts short term activity.”
So what can be done?
Rawnsley’s analysis shows governments have focused too much on post-disaster reconstruction while investing too little in mitigation.
“Out of ever $100 spent on disasters about $97 is spent post the disaster,” he says.
The upshot? A disaster-prone nation like Australia should be doing much more to ameliorate the effects of extreme weather.
Matt Wade is a senior journalist at The Sydney Morning Herald.
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