How much do disasters cost? A comparison of disaster cost estimates in Australia
Introduction
Globally, Australia is among one of the most frequented countries by disasters [1]. Disasters that hit major population centres understandably impact heavily on the economy, and it is a goal of both policy makers and researchers to understand the burden this places on communities. To the question “How much do disasters cost Australia?” there is no single answer. Currently there is a confounding variety of estimates relating to the cost of weather related disasters in Australia. Even a single estimate of a single event allows considerable scope for interpretation, depending on what is included in the overall tally, and whether it is interpreted as a loss or benefit. These confounds also affect aggregate estimates: one recent estimate based on unpublished data suggested annual costs as high as $9 billion for 2015 [2], and projected these to rise to $33 billion a year by 2050. However this estimate did not consider the potential impacts of climate change, nor did they investigate indirect or intangible damages [3]. Taking these impacts into consideration the actual value would be expected to be much higher [4]. To ensure communities are compensated and governments can budget accurately for losses, there is a real and growing need to estimate how much disasters in Australia have cost in the past, and will cost in the future. There have been several attempts to cost natural disasters in Australia utilising different methods and it is the aim of this paper to compare a selection of these approaches.
The ‘cost’ or ‘loss’ from a disaster is not a straightforward concept, and this comes through in the breadth of estimates presented here. While there is some debate about the boundaries of different loss/cost categories, for the purpose of this paper we follow the standard set out in BTE [5] but also see [6], [7], [8] and described below. We use the term “loss” except when referring to an item which is normally costed, such as the “cost” of a repair, and when it is the term normally employed as in cost-benefit analysis. Cost or loss estimates may be economic or financial. Economic impact assessments look at all costs and benefits to the whole community affected by a disaster, whereas financial analyses estimate the financial impact on an individual or entity [5], [9]. Within an economic impact assessment framework, cost items may be divided into costs directly resulting from the event such as damage to residential structures (often insured) or crops (often not insured). Indirect costs may also be counted, such as those resulting from business interruption (sometimes insured), or disruption to transport networks (not insured). Benefits to the community, such as increased activity in the building sector, also need to be considered for a full economic analysis [10]. ‘Cost’ can also be more broadly understood to incorporate intangibles – not directly traded in the market place – such as the cost of loss of memorabilia, cultural heritage or ecosystem services. Similarly, benefits can be intangible, such as the community cohesion built during a disaster response [11]. Further, how costs and benefits are defined depends heavily on the geographical and temporal boundaries of the analysis [10].
This paper starts with an examination of five studies that look at the aggregate cost and relative impacts of disasters to Australia. A comparison of these studies reveals some of the ways in which data source and methodology can have significant impacts on conclusions drawn. A number of loss/impact estimates of the 1983 Ash Wednesday bushfires are then examined to reveal how differences in data source and methodology can make estimates, even of the same event, vary substantially. Analyses of estimates also highlight how much of the full economic cost of disasters is excluded in many figures. Finally, the use of such estimates considering uncertainty in projections about the future is considered.
Section snippets
Cost categories
Economic loss is defined by the Integrated Research on Disaster Risk (IRDR) program as “the amount of damage to property, crops, and livestock and to the flow of goods and services expressed in monetary terms” [pg. 16; 12]. A full economic analysis of the cost of natural disasters would include direct, indirect and intangible losses (both insured and uninsured), as well as any economic benefits created by the disaster [12]. For Australian as much as for global disasters, the major difficulties
Normalisation
Typically, for historical disaster cost data, time-series analysis is utilised [22], [23]. For a time-series analysis, the data needs to be adjusted so that comparisons over time are valid. An approach generally termed “normalisation” is typically used to prepare data for comparative analysis over time. Normalisation adjusts losses by removing the influence of socio-economic changes such as inflation, wealth and population [23], [24]. Without normalisation, comparisons might be dominated by
Comparison of aggregate analyses and cost databases
The economic loss of weather related disasters in Australia was evaluated from four domestic reports – Bureau of Transport Economics [5]; Handmer, et al. [26]; Blong [28] and Crompton [25]. As a comparison from an international perspective, we selected a fifth report by Guha-Sapir, et al. [1]. This provides a long-term analysis of economic and human losses for Australia, and is one of the few international reports that has disaggregated information for countries. Other databases, such as Munich
Discussion of aggregate loss estimates
Before losses from the studies are compared, it is critical to note that simply due to the way that the data was collected, several differences exist. Three of the reports discussed here [5], [25], [26] refer to an average annual cost of weather related events in Australia all beginning in 1967. The year 1967 was chosen by all studies as it is when disaster loss recording in Australia was made a priority and the ICA database began recording historical data losses. All the reports provide a time
Individual event loss assessment
The 1983 Ash Wednesday bushfires resulted in one of the most devastating disasters in Australia's history. Below we compare six assessments of this event, looking at loss (and in some cases net impact) estimates. Three estimates come from the ICA database [13], EM Knowledge Hub [14] and the BTE report [5], which are discussed above. While not contained within the larger datasets, a further three estimates of the impact of the Ash Wednesday bushfires are included to enrich the comparison. The
Conclusions
The breadth of estimates on the costs of disasters to Australia presented here are wide. This stems from ongoing limitations of economic estimates of disaster costs both in Australia and globally. It has frequently been noted that this type of data suffers from a lack of availability or reporting; poor data quality of what is reported; temporal and geographical limitations; lack of regularity of updating and maintenance; and little or no reliability analysis [51]. As a result, insurance data is
Acknowledgements
This paper is based on work undertaken for the National Emergency Management Projects (NEMP) project “Updating the BTE (Australian Bureau of Transport Economics) (2001) report: The Economic Costs of Natural Disasters in Australia”; and work undertaken separately on the Australian disaster database, AUS-DIS, funded by RMIT's Centre for Risk & Community Safety. We thank the Attorney-General's Department NEMP grant program, and RMIT University for funding the work. Our appreciation goes to the
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