Brokers call for discussion on disaster insurance

Brokers call for discussion on disaster insurance | Insurance Business

Brokers call for discussion on disaster insurance

As the clean-up from recent natural disasters continues around the country there are calls from brokers for a frank discussion about disaster planning and disaster recovery funding.

Lea Insurance Brokers chief executive Dennis Keating says the recent repeated flooding in Queensland highlights the need to openly discuss insuring people who live in areas that are disaster prone.

“There needs to be a serious discussion about how we respond to claims from people who live in areas that face regular disasters. We have people living on flood plains with insurers told to provide cover for floods but no-one is tackling the issue at a bigger level,” Keating says.

“At the same time it is likely some premiums will go up with some people either choosing to pay for less cover or opting out all-together because they can’t get reasonably affordable coverage.”

“The tough question we have to face is ‘how do we prevent disasters?’ because we know from history that what has flooded in the past will flood again.”

However Keating says the recent national disasters including fires in the south-eastern states demonstrates this is a national discussion.

“At present the focus is on Queensland but people forget the biggest claims events are things like hail storms that have hit cities in Victoria, NSW and Western Australia.”

Northwest Insurance owner David Coe says the recent disasters also highlight the need for a national fund to deal with natural disasters across the country.

“Since the introduction of the Terrorism Insurance Act in 2003 everyone has been paying a levy but there have been no claims in Australia. As such the levy funds must be fairly high,” Coe says.

“It would make more sense to use these funds to start a national disaster levy – which would not be event or location specific – for the benefit of the nation. The levy could be capped and applied to some commercial and personal insurance.”

A similar scheme has been suggested by Queensland Federal Member for Parliament Warren Entsch who states the Federal Government should underwrite disaster insurance to reduce premium costs in disaster-prone regions.

Enstch, the Member for Leichhardt in far-north Queensland told the ABC that similar schemes exist in Thailand, Japan and New Zealand and have resulted in affordable insurance premiums for home owners and small businesses.

The scheme would be funded via a levy and used to help insurers negotiate cheaper rates with re-insurers while also providing for the first $500 million in damages in the event of a natural disaster.

Such a scheme was recommended by the Natural Disaster Insurance Review which was ordered by the Federal Government following the 2011 flood. One of the NDIR’s recommendations was a government-backed reinsurance facility to address this issue.

Federal Minister for Workplace Relations, Financial Services and Superannuation Bill Shorten also told the ABC that the idea was under consideration but there were concerns that such a scheme may create market distortions.

  • The Southportian 2013-02-12 3:58:05 AM
    And whilst at it include bushfire. Yes, there must be huge amounts of funds in the Terrorism which would provide a great starting point for such a fund. (Assuming the incumbent Government has stolen the money for other uses. BUT the fund must be administered independently. Appont a panel that determines when the Disaster card is played, dont allow a government of any persuasion to make that call.
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  • Damian Scantlebury 2013-02-12 4:01:26 AM
    Like to know what Bill Shorten actually means and is alluding to, regarding market distortions. Sounds like a side step to me. A National Disaster Fund would be more appropriate than the Terrorism Fund and get more use as is evident. Think how NZ would have coped without an Earthquake fund. Theirs was a brilliant idea for an age old problem with the Shakey Isles. I would highly support a National Disaster Fund with a cash input from the Terrorism Fund as it would be more appropriate. The National Disaster Fund should cover Terrorism as well. With disasters forthcoming such as floods, the money would be well spent on infrastructure such as levies and the like to assist in diverting future disasters, rather than on those people who either dont insure at all or take the punt on cheaper premium policies which have restricted covers. You need a strategy for the long term, rather than a short term expensive repetitive fix.
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  • Robert Cooper 2013-02-12 7:02:06 AM
    A great idea to change the Terrorism Levy fund into a National Disaster Fund. It should definitely be contributed to additionally though by Governments but I have a problem with levies on premiums. The trouble is levies that are too high put people off from buying insurance as it becomes more unaffordable, the very argument we have with FSL and stamp duties. There are many disasters that you would hope could be minimised or avoided by Government (local and state) regarding where they allow people to build, the size of drains,how often the are maintained (removing rubbish clogging them etc), building and properly maintaining dams to capture run off and failing to bring in flood mitigation such as levees. Then we have buildings up on hills that can slide down hills in heavy rain due to mudslides or landslides. We have the potential of Storm Surges affecting buildings on the coast. Then Governments can bring in much stronger building codes to help in coping with storms and hail. They can provide better resources to monitor the weather with better warning systems to prevent loss of life. All this can be done by Governments now but they choose to do it half-heartedly or not at all, all for the sake of achieving surpluses to help them win the next elections. It all falls on the insurance industry to pay for risks that technically are not as insurable as they could be due to the moral hazard influence. So Governments should be directing funding to managing and adapting to these risks rather than just simply compensating people out of levies imposed on people's premiums.
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