The Insurance Signal: Insights for Councils

Rising Cost of Damage

Reading the Insurance Signals 

What Mutual Arrangements Can See 

That raises a useful question: what can councils learn from the arrangements that help protect them? Local government mutuals pool members’ risks and draw on claims experience across councils. They also work with the wider insurance market to arrange protection beyond the pooled layer. This gives them a view of both the losses councils are experiencing and the questions being asked by those providing cover. 

LGIS in Western Australia has made those questions unusually explicit. In its advice to members, it identifies extreme weather as a concern for property protection and notes the interest of its indemnity partners in councils’ planning and development decisions. It also warns that asset values prepared for financial reporting may not give an accurate picture of what it would cost to replace buildings, infrastructure and contents after a loss. Its climate risk guidance encourages councils to revisit their assessments and use local climate scenarios when making decisions about services, assets and future development. 

The advice takes different forms across mutuals. In New South Wales, Statewide Mutual describes its work with councils as spanning cover and risk management; The Hills Shire Council says that support has included business continuity planning and climate change risk management. The common value is practical: mutuals can help councils connect a changing risk picture with the decisions they control. The challenge for councils is to make that connection early enough to influence what they build, how they maintain it and what they can afford to lose. 

How Does Insurance Work in a Council

A council may use commercial insurance, a local government mutual arrangement, or a combination of the two. In a mutual, member contributions fund a pooled layer of losses, while the arrangement may purchase external protection for larger claims. The structure and terms vary between schemes.
Councils commonly arrange protection for damage to specified property, claims arising from their activities and other exposures such as vehicles or cyber incidents. The specific details are important: each arrangement sets out which assets and events are covered, the amount the council pays before protection responds, applicable limits and any exclusions. Wear and deterioration, for example, generally call for maintenance and renewal funding rather than an insurance claim. The cost of rebuilding to a more resilient standard may also exceed the amount payable for reinstatement.

Insurance enters council decisions well before renewal:

• Asset management: Which assets are exposed, what would reinstatement cost, and are the declared values current?
• Capital projects: Would the design or location change future losses, the cost of protection or the amount the council must fund itself?
• Planning and development: Could a decision create new exposure or potential liability?
• Governance and finance: What loss could the council carry, and how would it maintain services while recovering?

What remains with the council?
Even where an asset has protection, the council may still need to meet costs arising from:

• an asset that has not been declared or has been valued below its reinstatement cost;
• damage below the deductible or above a limit;
• gradual deterioration and repeated maintenance needs, rather than damage from a covered event;
• an asset reaching the end of its useful life sooner than planned;
• loss of access to a facility or disruption to a service, depending on whether the arrangement responds to those consequences; or
• a decision to rebuild to a more resilient standard where the additional cost is outside the amount payable.

Roads make the distinction especially clear. A council may have protection for some infrastructure losses without every road repair being covered. It may also have statutory protections against certain liability claims. Cover for physical damage and legal liability are separate questions: a statutory protection does not pay to rebuild a damaged road. The answer depends on the council’s arrangements, the event and the law in its jurisdiction.

The Questions Behind the Insurance Signal 

The annual insurance renewal process can inform a council more than the cost of its protection for the coming year. The questions raised by insurers and mutual arrangements can also point to assumptions that need attention in asset planning and financial decisions. 

Signal 1: historical assumptions are becoming less reliable 

Councils make long-term decisions about assets that may have been designed using historical weather patterns. As conditions change, those assumptions warrant review. A drainage system approaching renewal, for example, may need to be assessed against the rainfall it could face over its next period of service. The same principle applies to decisions about maintaining or replacing assets exposed to heat, fire or coastal hazards. 

Council officers need to identify changing conditions that could materially affect a decision. LGIS observes that some existing infrastructure was built for historical weather patterns and that its indemnity partners are watching how the sector acts to prevent losses. The practical question is whether updated climate information reaches the people setting useful lives, maintenance priorities and renewal specifications. 

Signal 2: assumptions about declared values and reinstatement 

The value of an asset in council accounts may differ from the amount required to reinstate it after a loss. Demolition and site work can add to the cost of rebuilding. The council may also have property and infrastructure recorded in different systems, making it harder to see the full value that needs protection. 

Accounting valuation cycles may be insufficient for declared values and councils need a clear process that brings buildings, infrastructure and contents into the assessment. There is a further decision for councils: after a damaging event, would they rebuild to the previous standard, or invest in a more resilient asset? Any additional cost needs to be understood alongside what their protection arrangements would fund. 

Signal 3: insurers and mutuals want evidence about vulnerability 

A hazard map shows where an asset may be exposed. Its condition, design and role in delivering a service help explain what a damaging event would mean in practice. Evidence of work already undertaken to reduce vulnerability can add to that picture. 

The level of information needed will vary with the asset and the decision. For a significant facility approaching renewal, it may be useful to understand its exposure, likely damage pathways and the time needed to restore the service. That evidence can guide investment within the council and support a more specific conversation with its insurer or mutual.  

Signal 4: risk treatment needs to extend beyond risk transfer 

Cover remains a vital part of managing a potentially severe loss. It does not determine whether an exposed asset should be strengthened, how a disrupted service will continue or how the council will meet costs it retains. 

Those decisions belong in wider risk treatment and financial planning. A council may reduce the likelihood or consequence of loss through asset works, carry some costs through a deductible or pooled mutual layer, and arrange external protection for larger losses. It also needs to know how it could fund a recovery that exceeds the available cover. Looking across those decisions brings the full financial consequence of an event into view.

Looking Beyond the Cost of Cover

An insurance premium or mutual contribution is a visible annual cost. It says much less about what risk is costing a council overall. The established concept of total cost of risk brings together the cost of protection, spending to prevent losses and the losses an organisation pays for itself. For councils, service disruption and recovery costs also deserve attention, even when they are difficult to estimate precisely.  

Consider a flood-exposed works depot. Its annual cost of risk could include the mutual contribution, drainage maintenance, inspections and repairs following smaller floods. Those costs appear in different budgets, making the full picture easy to miss. If a major flood closes the depot, the council could also face a deductible, clean-up costs and the expense of operating from another site while repairs are underway. Reinstating the depot to a more resilient standard may require funding beyond the amount available under its protection arrangements. 

Considering both the regular cost and the cost of a severe but plausible event helps council leaders see where an annual protection budget may leave a larger financial exposure. Estimates can be refined as asset information and climate risk assessments improve. 

City of Darwin offers a recent example. Reporting in July 2026 put the council’s Cyclone Fina clean-up cost at about $13.4 million. The council was seeking support through disaster-recovery funding and insurance while using internal savings and redirected budgets to meet part of the cost. The eventual funding mix was still subject to decisions on its claims. The case shows how an event can draw on several sources of funding and affect planned expenditure. 

Neither view produces a single perfect number. Together, they give council leaders a stronger basis for comparing the cost of reducing risk now with the financial consequences they may otherwise have to carry. That leads to four practical choices: avoid an exposure where possible, reduce the losses it could cause, transfer or share part of the financial risk, and prepare to retain what remains.

What can a Council do with the Risk?

Total cost of risk gives councils a way to compare protection costs with the cost of preventing damage and the losses they may still have to fund. The response depends on the asset or service and the consequences of changing it. 

Avoid: move away from the exposure 

• Relocate a planned depot outside an area of significant flood risk before committing to construction. 
• Redesign a proposed facility so critical equipment is located away from the part of a site that would be inundated. 
• Change where or how a discretionary service is delivered if the existing arrangement would expose staff or users to unacceptable risk. 

Avoidance may remove a particular exposure while creating other costs or service impacts. A decision to discontinue or relocate a service needs to consider the council’s obligations and the people who rely on it. 

Reduce: limit the likelihood or consequence of loss 

• Improve drainage when renewing a road that has repeatedly washed out. 
• Strengthen the roof of an exposed council building and keep gutters and surrounding vegetation maintained. 
• Update emergency procedures so staff can protect equipment and restore a disrupted service sooner. 
• Arrange an alternative operating location for an essential service while its usual facility is unavailable. 

These actions may reduce physical damage, recovery time or the cost of disruption. Their value depends on whether they address the vulnerability that matters for that asset or service. 

Transfer or share: arrange for others to carry part of the financial loss 

• Use a local government mutual arrangement that pools defined losses among member councils and arranges external protection for larger claims. 
• Purchase insurance for a major property exposure, with attention to the applicable limits, exclusions and deductible. 
• Allocate a specific risk in a contract where another party is able and willing to manage it, supported by appropriate contractual terms and protection. 

A partnership can help councils manage a shared risk, but it only shares the financial loss where the parties have agreed who bears which costs. Insurance and mutual protection likewise leave the council with responsibilities for preventing harm and restoring services. 

Retain: prepare for the risk that remains 

• Budget for recurring minor storm repairs and the deductibles the council expects to pay. 
• Assess how several damaged assets in one event could affect available cash and the capital program. 
• Plan for temporary service arrangements and any additional cost of rebuilding to a more resilient standard. 
• Record a material exposure where cover is unavailable or unaffordable, so decision-makers can assess the consequences of carrying it. 

A council may choose to retain some risk. It may also find itself carrying a loss because cover does not respond as expected. Both need to be visible in financial planning. 

Questions for Council Leaders

Insurance renewal is one point at which a council’s exposure becomes visible. The decisions that shape it are made throughout the year, in asset planning, capital budgets, service design and land-use planning. Executives and elected members could ask: 

1. What would a severe but plausible event cost us in full? Include the deductible, uninsured assets and costs, service disruption, temporary facilities and the difference between reinstating an asset and rebuilding it to a more resilient standard. 
2. How confident are we in our asset information? Are exposed assets declared where required, valued at realistic reinstatement costs, and assessed against the hazards they may face over their remaining lives? 
3. Which losses are we expecting to retain? Can the council fund its deductibles and foreseeable uninsured costs without displacing essential services or planned capital work? 
4. What are we doing to change the risk? Which adaptation measures are operating now, which are funded and committed, and which remain unfunded, under investigation or dependent on another organisation? 
5. Where do these findings change a decision? Should they affect the location or design of a new facility, the timing of an asset renewal, a maintenance program or the way a service is delivered? 
6. Who brings the whole picture together? Do risk, finance, asset, planning and climate teams give decision-makers a shared view of exposure, protection and the cost of keeping services running? 

Closing

The insurance sector is giving councils useful information about climate risk. Changes in price, deductibles, limits and information requirements deserve to be read alongside the condition of assets, the services they support and the council’s capacity to absorb a loss. Mutual arrangements can help translate those signals through their experience of local government claims and risk. 

The practical test is whether this information changes a council decision. Leaders can use it to understand retained exposure, examine investment in resilience and plan how essential services will continue after a damaging event. Insurance and mutual protection remain valuable parts of that response. 

These decisions extend beyond council assets. As climate exposure affects household and business insurance, it can also influence local recovery, housing and economic resilience. The next article will examine when community insurance risk becomes a council concern and the role local government can realistically play.

Useful Tools and Guidance

Insurance Council of Australia: Insurance Catastrophe Resilience Report 2025–26 

This report brings together recent Australian catastrophe claims data, construction cost trends and recommendations for reducing exposure to extreme weather. It includes charts suitable for illustrating the rising cost of insured losses, provided their captions make clear that the figures cover all policyholders rather than councils alone. 

Most useful for: The article’s opening figures on extreme-weather claims and rebuilding costs.

Insurance Australia Group and the National Center for Atmospheric Research: Severe Weather in a Changing Climate, third edition  

This review of climate science examines how Australia’s severe-weather hazards are changing and what may lie ahead. It provides a physical-risk basis for questioning whether past conditions remain a sound guide for long-lived assets.
Most useful for: The section on historical assumptions and the need to consider future conditions in asset decisions.

LGIS: Local Focus, Global Connection: LGISWA Mutual Membership in 2025/26   

LGIS explains how its Western Australian mutual arrangement connects members to external protection. It identifies extreme weather, local government planning decisions and the accuracy of declared property values as matters of interest to its indemnity partners. 

Most useful for: Specific, attributable examples of the signals a local government mutual is giving its members.

LGIS: Be Prepared: Climate Change Risks    

This guidance encourages local governments to assess climate risks and incorporate the findings into existing risk management and decision-making processes. 

Most useful for: Showing how mutual advice can extend from arranging protection to managing the underlying risk.

Statewide Mutual: Risk Management Programme 

Statewide Mutual describes its guidance, training and tools for New South Wales councils. These include a decision-making framework addressing sea level rise, flood-prone land and bushfire zones, and an insurance review programme covering insurable risk profiles and business interruption. 

Most useful for: Examples of the advice and practical support mutual arrangements can provide beyond annual renewal. 

Winston Churchill Trust: Alix Pearce’s Churchill Fellowship Research  

Pearce’s research explores how Australian insurers can help reduce risk and scale climate and resilience solutions. The fellowship page provides access to her report. 

Most useful for: The broader argument that insurers can contribute knowledge and support investment in reducing losses.

International Risk Management Institute: Cost of Risk: Definition 

This industry definition treats the cost of risk as wider than insurance premiums alone. It provides a reference point for discussing retained losses, risk control and the other costs an organisation incurs in managing exposure. 

Most useful for: Introducing total cost of risk as an established industry concept.

International Organization for Standardization: ISO 31000:2018 — Risk Management Guidelines 

ISO 31000 provides principles and a process for identifying, assessing, treating and monitoring risk across an organisation. The article’s avoid, reduce, transfer or share, and retain headings are a practical way to explain council choices; they should not be presented as four headings prescribed by the standard. 

Most useful for: Grounding the discussion of risk treatment in a recognised risk management approach.

This article is part of the Local Government Climate Risk and Capability thought leadership series.