Mice, floods and the climate crisis: why your insurance won’t cover society-wide catastrophes | Richard Denniss

That’s why there’s so much profit to be made in insurance. If a forecaster says something’s likely to happen, then it’s highly unlikely you’ll be able to get insurance against it.

Insurance is like a lottery in reverse; lots of people lose a little bit of money paying for premiums they don’t claim against, a few people get a fair bit of money, and the insurer makes a lot of money for handing one group of people’s money to the other. As with gambling, the house always wins.

Which brings me back to mice, nuclear power stations and climate change.

There is a plague of mice rampaging from Queensland through northern New South Wales. Some farmers and small business owners have lost their entire income. So far the cost is estimated to be about $1bn but unless the mice eat through your wiring and burn your house down, insurance almost certainly won’t cover any losses.

While insurance companies make their profit out of our fear of an individual catastrophe, they would lose their entire business if they insured against society-wide catastrophe. We take it for granted that insurance companies will pay out if an accident hits our car or house but most people rarely think about what will happen if catastrophe hits us all at once. Which is why the small print on insurance premiums is so small.

The Fukushima nuclear disaster is likely to cost the Japanese government more than $500bn in damages and compensation simply because no private company would build a nuclear plant if it were liable for those costs, and no private insurance company would ever take on such a large risk. If there was an accident at Lucas Heights in Sydney, people would need to rely on government support as their insurance explicitly doesn’t cover the costs.

For the same reasons, a growing number of insurers are reluctant to insure Australians living in the tropics against storm damage.

Just as no bookmaker will take a $10bn bet on the flip of a coin, no insurance company will take a bet that nuclear power stations won’t have accidents or that sea levels aren’t going to rise in the next 50 years.

While you can still get cyclone insurance in northern Australia, the prices are rising rapidly as global temperatures rise and tropical cyclone intensity increases. In response, the Morrison government announced a $10bn “reinsurance pool” to help lower insurance premiums for northern Australians. But not even the insurance industry thinks that will work.

According to the chief executive of Suncorp, Steve Johnston, “disaster mitigation, rather than disaster clean-up, is where Australia should focus. It is a sad fact that 97 cents of every dollar of disaster funding goes to recovery and rebuild. The remaining 3 cents spent on preparation and mitigation is but a small drop in a rapidly filling bucket.”