Why more spring rain will bring more financial pain
By Michael Jones
As thousands of Australians continue to deal with the fallout of major flooding this year, a perfect storm of a third La Niña and a second negative Indian Ocean Dipole is set to bring more heavy rain and more financial pain over the coming months.
A third La Niña in consecutive years is rare, according to meteorologists, with previous ‘three-peats’ occurring in 1954–57, 1973–1976 and 1998–2001. It’s believed that this is the first time since 1960 that negative Indian Ocean Dipole events have occurred two years in a row.
During La Niña, east-to-west equatorial winds strengthen in the Pacific, increasing the chance of above-average rainfall in the spring and summer in much of Australia.
In a negative Dipole event, warmer water concentrates in the eastern Indian Ocean and moisture-rich air flows towards Australia.
How a negative Indian Ocean Dipole works. Source: Bureau of Meteorology
UQ atmospheric and climate researcher Professor Hamish McGowan said a negative Indian Ocean Dipole tends to be at its most pronounced during Australia’s spring months.
“During negative phases, you have warm water to the north-west of Australia, and cooler water in the far western Indian Ocean,” Professor McGowan said.
“By having a pool of warm water to our north-west, you get greater moisture transfer from the ocean to the atmosphere. That moisture is then transported down through Central Australia and into south-east Australia. And naturally you get precipitation along that pathway – but most of the precipitation tends to occur over south-east Australia.”
While back-to-back negative Indian Ocean Dipoles have not occurred in more than 60 years, Professor McGowan said it’s hard to know for sure just how unusual these events are given that observational records are so short.
UQ atmospheric and climate researcher Professor Hamish McGowan.
UQ atmospheric and climate researcher Professor Hamish McGowan.
“We only have about 150 years of direct observations of ocean circulation, or meteorology, that we can refer to,” he said.
“What we need to watch is when these two systems work in unison. When we have a La Niña and a negative phase of the Indian Ocean Dipole, we have warm water to our north-east and warm water to our north-west, and that puts a lot of water vapour into the atmosphere.
“We’re getting a double whammy, and we end up with a very wet spring and summer.
“What is of concern is that our water catchments are already quite wet. So, any significant rainfall we have near our catchments will report very quickly to our river systems.
“This leads to an increased probability of flooding and potentially more severe flash flooding, because the ability of the landscape to act as a sponge and absorb that moisture is not there.”
But it’s not just the landscape and catchment areas that will struggle to cope with more heavy rain periods.
As the Queensland Government begins negotiations for its Voluntary Home Buy-back Program, a recent report has found that 1 in 10 – or close to 1 million – Australian households are already being pushed to the brink with extreme levels of insurance stress, while the flow-on effects of premium hikes and repeated flooding are being felt across the broader economic sector.
The report defined vulnerable households as those spending the largest share of income on insurance. These households currently pay an average of 7.4 weeks’ pre-tax income on their premiums. This compares to an average of one week of income paid by the rest of the population.
UQ financial strategy and risk expert Professor Paula Jarzabkowski said Australia has reached a cliff and it’s time to sit up and pay attention to the broader implications for our economy.
“The truth is that if you can't get insurance, you're being driven into inequality and poverty,” Professor Jarzabkowski said.
“People tend to think that those who are underinsured, or uninsured, are irresponsible people who have made bad choices. But when you look at the fact that one million households are facing extreme levels of insurance stress, that means we are all likely to know at least one person who is struggling.”
While insurance premiums are stretching household budgets, Professor Jarzabkowski said ongoing mortgage repayments on properties that have been damaged, or even destroyed, are adding even more financial stress.
“If your property is destroyed and it's still under mortgage, you still have to pay that mortgage, but you don't have the money to rebuild the property,” she said.
Many homes were damaged or destroyed during major flooding in Lismore this year. Image: Dan Peled / Getty Images
Many homes were damaged or destroyed during major flooding in Lismore this year. Image: Dan Peled / Getty Images
“So, you're paying a mortgage on a property that isn't there or is uninhabitable. This is a financial stress for you, but it’s also a financial stress for Australia, because it starts to create a potential for bad mortgages.
“We all know what happened last time we had a run of bad mortgages, with the subprime mortgage crisis and the global financial crisis.”
Professor Jarzabkowski said even if households aren’t experiencing extreme levels of insurance stress, all Australians are paying the price for repeated flooding.
“Every Australian household has paid about $1500 towards flood recovery over the past 12 months. So, everybody is paying because when the Queensland Reconstruction Authority and the New South Wales Reconstruction Authority come to rebuild, they only build with the money that we've already created for them,” she said.
“That’s money that won't go into education, aged care, or infrastructure because it has to go towards getting people back into housing.
“In the US, research has shown that 25 per cent of all small businesses never come back after a disaster. But it's these types of businesses that are the heart of our communities.”
Professor Jarzabkowski said as natural disasters, like flooding, continue to occur, towns in vulnerable areas might one day be at risk of falling off the map.
"These towns are already under extreme pressure, yet we are still blindly going ahead and rebuilding, with some houses rebuilt in the same place,” she said.
“When, in fact, we may need to start looking into planned migration, or managed retreat, where people need to be bought out, and – bit by bit – are retrieved from those areas.
“When you think about it, that's actually the loss of part of a town, or an entire town, and it's not something we can do quickly.”
“We need a strategy, and we need to face this head-on and make different decisions.”
Image: Dan Peled / Getty Images
Building from her international research into links between insurance and disaster resilience in both advanced and developing economies, Professor Jarzabkowski is now involved in a research partnership between the UQ Business School and the School of Civil Engineering, which is looking to improve financial protection and resilience to disaster in Australia.
She said there are a number of ways in which Australia can better protect itself financially from natural disasters and rising insurance premiums – and it starts with owning the problem.
UQ financial strategy and risk expert Professor Paula Jarzabkowski.
UQ financial strategy and risk expert Professor Paula Jarzabkowski.
“Governments and industries need to stop pointing their fingers at everybody else and recognise that disaster relief needs to be combined with housing and planning so that extra checks and balances are in place before anything gets built in vulnerable areas again,” she said.
“We also need to make communities more resilient to disasters.
“We already do a lot of work on early warning systems and making sure people are prepared, but how are we helping in terms of the pre-disaster mitigation to help prevent some of the losses?
“Are we also considering how we can allow people to live in a more resilient way after a disaster so that they can continue to work, and kids can continue to go to school? Where are we going to build temporary accommodation? And how are we going to manage social structures?
“We need to work with the communities to make this happen. And for that we need people's voices.”
If you have been impacted by floods, or have expertise in disaster relief or insurance, Professor Jarzabkowski would like to hear from you. Email p.jarzabkowski@uq.edu.au
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