This week, Tasmania’s governing Liberal Party announced plans for a state-run general insurer: TasInsure. Premier Jeremy Rockliff said the new entity would be created by expanding the Motor Accidents Insurance Board (MAIB), the state’s compulsory third party motor accident insurer.
The insurance industry’s national peak bodies have responded to the Tasmanian government’s proposal with varying degrees of alarm.
In a media release, the Insurance Council of Australia (ICA) referred to the “perverse economic and financial outcomes for taxpayers” resulting from “numerous examples” around the world where insurance risks were transferred to taxpayers.
The ICA said the Tasmanian proposal “would put significant financial risk on to the public balance sheet while failing to do anything about the underlying causes of insurance pricing.”
The National Insurance Brokers Association (NIBA) urged caution before considering “any intervention in insurance pricing or the underwriting process.”
“Tasmania presents unique challenges from an insurance risk perspective,” said NIBA’s release. “In such a concentrated market, a single severe weather event or catastrophic loss could materially undermine the viability of any risk pool.”
However, both peak bodies accepted that insurance availability and affordability are serious issues that require government collaboration to address. NIBA said this is “a key priority” for the broking profession.
“There is no silver bullet when it comes to the affordability challenge”
Insurance Business reached out to the ICA and NIBA for more information about their TasInsure concerns.
“There is no silver bullet when it comes to the affordability challenge,” said Mathew Jones (pictured, left), the ICA’s general manager of public affairs. He said sustainable insurance price improvements need to address the underlying risk and depend on longer term risk mitigation. These efforts, he said, require a partnership between government and industry.
Jones emphasised the option of getting rid of the state’s insurance taxes. “Insurance taxes are not an insignificant cost to policyholders, representing on average 20% for Tasmanians in their insurance premium pricing,” he said. “Numerous reviews have found stamp duty is an inefficient and inequitable tax that disproportionately targets those who can least afford it.”
NIBA’s CEO Richard Klipin (pictured, right) agreed and said this insurance cost reduction for Tasmanians could be achieved by transitioning to a property-based funding model for the Fire Services Levy (FSL), GST and stamp duty.
“Under such a model, emergency services funding would be collected from the broader base of property owners, rather than only from those who purchase insurance,” he said.
However, Klipin said “the most effective and enduring way to improve insurance affordability is to reduce the underlying risk that properties face.”
“Governments have a key role to play in this,” he said. “Through sustained investment in public infrastructure that reduces exposure to natural perils and by supporting household-level mitigation initiatives.”
According to Tasmania’s government, TasInsure’s insurance offerings would include home, contents, small business and coverage for community groups and events.
The Tasmanian Liberals estimated that the publicly operated insurer could offer average annual savings of $250 to households and reduce premiums for small enterprises by 20%. "[Insurance premiums] increased by some 35% in the last two years alone,” said Premier Jeremy Rockliff at a news conference.
He described it as “an extraordinary increase” impacting many Tasmanians. "We need cheaper, fairer and our own insurance company here in Tasmania,” said Rockliff. "The market nationally has failed Tasmanians and that is evident when you consider that the insurance industry made some $6 billion of profit last year alone."
The proposal has received a mixed response from the business community. In an interview with ABC News, Michael Bailey, CEO of the Tasmanian Chamber of Commerce and Industry (TCCI) described it as game-changing and expressed support. Some economists are on record strongly opposing the move.
One broker in Tasmania told IB that his state “has been down this road before”. In 1993 Tony Rundle’s Liberal government sold off the state’s insurer, the Tasmanian Government Insurance Office (TGIO), for $53.5 million.
Insurance Business is seeking views from brokers and other industry stakeholders on the Tasmanian government’s proposal. What’s your view? Please tell us below
