IAG launches report to help small businesses become more resilient to natural disasters
New research highlights the acute economic and social impacts that natural disasters have on small businesses
IAG, parent company of small to medium business insurer, CGU, today released new research which highlights the acute economic and social impacts that natural disasters have on small businesses and their communities, and the fundamental role insurance plays in supporting recovery and building resilience.
The backbone of regional and rural economies: small business and community resilience report (the report) commissioned in partnership with SGS Economics, analyses the effects natural disasters have on small businesses, with in-depth case studies conducted on two significant events, the Townsville Floods (2019) and Black Summer Bushfires (2019-20).
The report found, on average, between 65 per cent and 72 per cent of the total economic impact from the floods and bushfires was attributed to small businesses.
The report estimates the economic impact of the 2019 Townsville floods to be a $2.5 billion reduction in GDP, with the impact to small businesses estimated at $1.5 billion.
CGU Executive General Manager, Damien Gallagher, said the report recognises that small businesses, the nation’s largest employer engaging more than 4.7 million people, are at the greatest economic risk when faced with natural disasters, with risk awareness, underinsurance and a lack of mitigation activities critical factors.
The report highlights an ACCC survey1 of 75 small businesses in the Townsville area which found:
- Only 44 per cent of businesses with flood cover for damages also had cover for business interruption, which was the most common impact;
- More than 60 per cent of impacted businesses needed to close or reduce operation, with 28 per cent needing to close for more than three months, and 20 per cent interrupted for 6 – 12 months; and
- 67 per cent of small businesses believed their business wasn’t in a flood zone, while a further 20 per cent chose not to have it because the business didn’t operate out of the ground floor or basement.
The economic impact of the Black Summer bushfires (2019-2020), according to the report, is estimated as a $2.7 billion reduction in GDP, with businesses in NSW, VIC, SA and QLD impacted. In NSW alone, it’s estimated that small businesses suffered a $1.8 billion reduction in GDP.
CGU Insurance has protected Australians and their small businesses for over 160 years. We see firsthand the devastating impacts natural disasters have on small businesses and their communities, particularly in regional Australia
CGU Executive General Manager
“We know natural disasters will continue to increase in prevalence due to a warming climate. Research shows that a dollar spent on mitigation can save at least two in recovery and reconstruction costs. It’s critical that we now see governments identify and invest in mitigation activities, as well as stronger building codes and improved land use planning.”
Research results will help in forming sustainable solutions to ensure small businesses, particularly those in regional and rural areas, are better prepared for future catastrophic events.
Key recommendations in the report include:
- Government to prioritise and invest in mitigation strategies to reduce the impact of natural disasters on regional and rural Australia;
- Small businesses to conduct thorough disaster risk analysis to understand location hazards and natural peril risks, and insure accordingly;
- Households to increase understanding of risks, regularly reassess dangers to their environment and acquire insurance to meet their specific circumstances; and
- Governments to inform and educate communities on the increasing risks of natural disasters, and articulate the need for small businesses and households to be adequately insured to expedite immediate and long-term economic recovery.
IAG, whose brands also include NRMA Insurance, CGU and WFI, has long championed action on climate change, driven by its purpose – to make your world a safer place. IAG plays a critical role in communicating, managing and mitigating the evolving risks that individuals and communities face across Australia and New Zealand under the changing climate.
1 Northern Australia Insurance Inquiry report- ACCC (2019)