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Navigating Climate Change and Construction Challenges in North Queensland and Far North Queensland

Michael Chesterman
Michael Chesterman March 7, 2024

When I look at risks to contractors working in North Queensland (NQ) and Far North Queensland (FNQ), one that worries me a great deal is the industry’s preparedness and indeed willingness to address the impact of climate change. 

Let’s peel the scab off the sore straight up. Climate change has become such a divisive issue, that many people have decided that it is either real (me) or it is just plain nonsense, and nothing will change their mind. I am not a keyboard warrior. This is Australia, we are all entitled to our views on something as significant as whether climate change is real. 

However, in terms of contractors working in NQ and FNQ , I have noted an increased willingness for many to have an open mind on the potential impacts of climate change in their region, and this article focused on the economic impacts of climate change in the region, hopefully, will be informative for contractors with an open mind.    

The economic impacts  of climate change on the construction industry in Townsville are complex, reflecting the region’s exposure to a range of climate-related events. These impacts include: 

Let’s focus on Insurance

In a recent article published in The Guardian entitled ‘Why insurance premiums are squeezing Australians and fueling inflation, it is stated: 

“Insurance premiums are rising faster than inflation, squeezing homeowners, drivers and private health customers, as the rising cost of extreme weather events threatens to leave Australians exposed. 

The sector, largely overlooked as a driver of inflation and cause of cost-of-living pressures, was the  standout contributorto last week’s inflation data, representing annual price increases not seen in more than two decades. 

Insurers have been advising customers of double-digit premium price increases for most products, including home cover and car insurance, representing a new super cycle of hikes. 

The industry has defended the decisions, arguing that extreme weather and high costs of labour, building replacement, car parts and repairs mean above-inflation increases are necessary. 

Climate crisis effects are weighing heavily on prices charged by reinsurers, which take on some of the risk of natural disasters, ultimately passed to policyholders.” 

 It seems to me that the economic ramifications of climate change on insurance premiums in Northern Australia are profound, primarily due to the increased frequency and intensity of extreme weather events such as cyclones and floods. 

Insurance Premiums in Northern Australia

Insurance premiums in Northern Australia have seen a notable increase, with the Australian Competition and Consumer Commission (ACCC) reporting that in 2022–23, North Queensland strata premiums rose by 8% to an average of $9,615. Similarly, home and contents insurance premiums in Northern Australia increased by 7% to an average of $2,918. 

These figures are significantly higher than the national average, underscoring the financial burden on those residing in cyclone-prone areas. 

Cyclone Reinsurance Pool 

The government introduced a cyclone reinsurance pool to mitigate these costs. However, the ACCC has observed that significant widespread price effects from the pool have not yet materialised, given that insurers only began joining the pool at the start of 2023. Large insurers are mandated to join by the end of 2023, with the anticipation that this will eventually lead to premium savings for consumers at higher risk of cyclones. 

Contributing Factors to High Insurance Costs 

Several factors contribute to the escalated insurance costs in Northern Australia, including higher building replacement costs and the global reinsurance market’s conditions. Climate change is expected to further intensify extreme weather events in the future, impacting insurance premiums. 

Community Impact 

The rising insurance costs have significant implications for the NQ and FNQ community, leading to underinsurance and leaving homeowners and businesses vulnerable to financial distress in the event of a disaster. The Guardian reported that Australians, including those in Northern Australia, are facing prohibitive insurance premiums, with some regions potentially being charged 10-20 times more than other parts of Australia. 

For contractors with an open mind to consider the potential impacts of climate change on the industry, I think it is very important to provide multiple sources of trusted research. 

  • Climate Council: A report by the Climate Council discusses the mental health impact of climate change and extreme weather events, including the economic strain caused by rising insurance premiums. It found that nearly two-thirds (64%) of surveyed Australians who had insurance said their premiums had increased recently, with most attributing the rise to an increase in the impact of recent extreme weather events.
  • Insurance Business Magazine: This publication reported on the direct impact of climate change on insurance rates in Australia, noting that insurers are raising premiums to cover the increased cost of claims and reinsurance due to the rising risk of being affected by extreme weather events. A poll conducted by Mozo revealed that almost half (49%) of Australians believe that climate change has been pushing up their insurance costs. 

  This statement floored me.  

“The council’s research estimates that one out of 25 residential and commercial buildings – equivalent to 520,940 properties – in Australia will be “effectively uninsurable” by 2030, with the figures reaching as high as nine in 10 in the worst-impacted suburbs.” 

  • Insurance Council of Australia (ICA): The ICA released research showing that extreme weather events over the past 12 months (published on 8 September 2022) cost every Australian household an average of $1,780. The direct costs from extreme weather events are estimated to grow by more than five percent above inflation and reach more than $39 billion by 2050. This report also discusses the impact of climate change on the availability and affordability of insurance.
  • Insurtech Insights: A report by the Actuaries Institute, as reported by Insurtech Insights, highlighted a shocking surge of 50% in home insurance premiums within high-risk regions across Australia, with climate change-induced disasters being identified as the main driver behind this increase. The report also noted a 28% spike in median home insurance premiums across all states for the year, with the average premium now at $1,894. 

These studies and reports corroborate the ACCC’s findings that climate change is contributing to increased insurance premiums in NQ and FNQ, reflecting the broader trend of rising insurance costs associated with the increased frequency and severity of natural disasters across Australia. 

Final thoughts

Climate change has significantly impacted insurance premiums in NQ and FNQ, with the region’s susceptibility to extreme weather events leading to higher insurance costs.  

While the cyclone reinsurance pool is a step towards addressing these issues, its effects are yet to be fully realized.  

The economic burden of increased premiums is a pressing concern for residents and businesses in NQ and FNQ, necessitating a concerted effort from the government and insurance industry to find sustainable solutions. 

I am of the view that climate change presents significant economic challenges for the construction industry NQ and FNQ, from increased costs and insurance premiums to the need for investment in resilient infrastructure.  

On a positive note, the challenges posed by climate change also present opportunities for the construction industry in Northern Australia. There is potential for growth in the development and application of innovative, climate-resilient building materials and construction methods. This includes the use of low carbon construction materials and the adoption of energy-efficient, sustainable building practices. 

Constructive Conversations – State of the Nation 

Join us at the Rockpool Pavilion in Townsville on March 26, 2024, for the first  ‘Constructive Conversations‘  event of the year.

Don’t miss out on a presentation by David Cahill, Helix Compliance Director, focusing on the State of the Nation with a special emphasis on North Queensland.

Date: Arrival from 5:00pm for a 5:30pm start

Time: 26 March 2024

Location: Rockpool Pavilion, 54 Howitt Street, Townsville City

Not intended as legal advice. Read full disclaimer.
Michael Chesterman
Michael Chesterman March 7, 2024

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