In news that is bound to affect the broking market, the Federal Government has pledged to invest $100m in flood mitigation projects over two years to reduce the risk of flooding and “bring about real reductions in insurance premiums”.
The National Insurance Affordability Initiative will invest $50m a year in targeted flood and other natural disaster mitigation measures, and establish a National Insurance Affordability Council.
The council will manage the national coordination of flood risk management, make recommendations to the Government on flood and other natural disaster mitigation projects and undertake other functions directed at reducing natural disaster insurance premiums.
The government has made a $7m contribution to building the Roma levee and $10m to upgrade flood defences in Ipswich. The council will start work on these projects immediately.
Research shows that the average insurance premiums in Roma are currently around $3,000. This is almost triple comparable premiums in nearby Chareville - which has a flood levee - of around $1,200. Suncorp has estimated that the construction of a flood levee by the Goondiwindi Council reduced insurance premiums by an average of 33%.
The government has promised tol make available up to $50m over two years to any NSW Government proposal for flood mitigation in Western Sydney by raising the Warragamba Dam.
The council will ensure that Government action in areas such as flood mapping aligns with insurance industry needs and assists in the goal of reducing premiums.
It will also closely track developments in strata title insurance markets in Northern Australia. Work is being undertaken in Australia by James Cook University and the Insurance Council of Australia on assessing the vulnerability of strata-title buildings in tropical Australia. The council will consider whether there is a role for Government in sponsoring mitigation work to alleviate insurance premiums in those regions.
A government statement by Prime Minister Julia Gillard, Financial Services Minister Bill Shorten and Attorney General Mark Dreyfus, read: “Despite a series of significant reforms to the flood insurance market by the Gillard Government, in flood prone areas affordability of flood cover remains a problem.
“Minimising damage from flood and other natural disasters is the only sustainable way to reduce insurance premiums over time. Experience in Australia and internationally has shown that mitigation can sustainably reduce insurance premiums.”
It continued: “Rather than have taxpayers cross-subsidise insurance premiums for those in areas of high risk, this initiative will identify and supplement the funding of mitigation works that will have a real impact in terms of lowering risk and achieving sustainable reduction of insurance premiums in areas exposed to high risk.