The Northern Australia Insurance Premiums Taskforce has released its interim report on the state of the insurance industry in Northern Australia, and has received some stern criticism from the industry.
The report looks in detail at the affordability issues in Northern Australia and investigates whether a government backed mutual insurer or reinsurance pool for cyclone risk would benefit consumers in the region.
“These options are to be evaluated having regard to: the potential reduction in consumer premiums; the likely cost and risk associated with using the Commonwealth balance sheet to lower the cost of insurance to consumers; the potential effect on the operation of the insurance and reinsurance markets, particularly the likely effects on competition; and how the role of the Government
can be gradually reduced over time,” the interim report states.
Rob Whelan, ICA CEO and member of the taskforce, noted that while the interim report has practicable things to say on the complex issues affecting the area, Government
involvement in the industry is not needed.
intervention through a taxpayer-funded mutual or a reinsurance pool would be an incredibly expensive and unnecessary interference in a functioning market,” Whelan said.
“In all likelihood intervention would not achieve the objectives the Abbott Government
“The issue in North Queensland is its exposure to cyclones and the damage that properties sustain. The focus must be on improving properties and communities in cyclone-prone regions, rather than ask taxpayers to subsidise them indefinitely.”
When discussing the impact on the insurance market that a Government
run mutual would have, the report issues a warning to brokers.
“A further risk highlighted by stakeholders is that the role of brokers would be reduced if there were a single provider of cyclone insurance. This could lead to brokers being squeezed out of the market and to customer service declining.”
The importance of mitigation forms a backbone of the report with the taskforce saying that prevention should be a focus as much as possible.
“The Taskforce has focused on the issue of mitigation, particularly to ensure that there are appropriate incentives for individuals to reduce the vulnerability of their property to cyclone risk,” the report states.
“An important incentive should be the prospect of lower insurance premiums. The Taskforce is consulting with experts in cyclone mitigation and with the insurance industry to see if the incentive structures for mitigation are as effective as they could be.”
Whelan hoped that the taskforce, which will continue its work until a final report is issued in November, will continue to look towards mitigation as a key focal point rather than state involvement.
“Insurers remain hopeful a practical, long-term and sustainable evidence-based solution can be found that does not unnecessarily interfere with the market for political reasons,” Whelan said.
“The ICA is hopeful that the government will take into account the findings of various reviews including the Productivity Commission, which identified that significant investment in mitigation is the most appropriate way to reduce risk and thereby influence premiums in the long term.”
To read the full report, click here