ACIL Calls for Government Action on Market Failure in General Insurance

The Australian Consumers Insurance Lobby Inc (ACIL) has asked the Assistant Treasurer Stephen Jones MP, to commission a comprehensive report or inquiry into market failure in the general insurance sector. ACIL raises serious concerns about the impacts of climate change and emerging risks, such as cyber threats, which are exacerbating the challenges faced by consumers.

Market failure in insurance occurs when consumers are unable to afford or obtain insurance due to market forces of supply and demand. ACIL highlights the growing problems of affordability and availability of insurance, exemplified by the case of Cyclone insurance in Northern Australia, which required intervention from the Federal Government through the establishment of the Cyclone Reinsurance Pool.

Moreover, ACIL points to instances where consumers are burdened with excessive premiums for flood and bushfire insurance, with some home insurance premiums soaring as high as $20,000 in the aftermath of recent natural disasters. These alarming examples underscore the urgency and significance of addressing market failure in the general insurance sector.

The impacts of market failure in insurance are far-reaching and detrimental to society. ACIL highlights the following consequences:

• Cost of Living Pressure: Unaffordable insurance premiums disproportionately affect financially constrained individuals and businesses, in the worst case leaving them underinsured or uninsured.

• Increased Vulnerability: Inadequate or unavailable insurance coverage leaves individuals and businesses exposed to financial risks, leading to hardships, bankruptcy, and loss of livelihoods. This undermines community resilience.

• Inequity and Social Disparities: Market failure exacerbates social disparities by limiting access to affordable coverage for individuals or communities facing higher risks, particularly in disaster-prone areas.

• Burden on Government: Insufficient insurance coverage places a strain on government resources and safety nets as individuals and businesses turn to public assistance in times of financial distress.

• Reduced Disaster Resilience: Market failure hampers recovery and resilience in regions prone to disasters, as inadequate coverage hinders rebuilding efforts and the ability to recover from losses.

To address these concerns, ACIL proposes that the government commissions a report or inquiry focusing on market failure in the insurance market. The report should encompass crucial areas such as identifying market failures, examining current challenges, recommending measures to reduce the impact of market failures, identifying emerging risks, and providing guidance for consumers, insurers, and the government on appropriate actions.

ACIL emphasizes the necessity of government action to address market failure in insurance, ensuring a fair and efficient insurance market that best serves the interests of Australian consumers. ACIL forward to engaging in further discussions and providing additional insights into their concerns.

About ACIL: The Australian Consumers Insurance Lobby Inc (ACIL) is a consumer advocacy group dedicated to promoting the rights and interests of insurance consumers. ACIL works to ensure fair and affordable insurance coverage for all Australians, advocating for transparency, accessibility, and accountability within the insurance industry.

Cyclone Reinsurance Pool - Fixed Marine Infrastructure

Marina Operators and owners of other fixed marine structures in Northern Australia are no closer to a solution on the affordability crisis face in what appears to be a decision by the Federal Government to not include Marine Insurance in the Cyclone Reinsurance Pool (pool)

The previous LNP government had set 1st July 2023 as the date that Marine Insurance would be included in the pool, however ACIL understand no preparations are being made to include marine insurance in the Cyclone Reinsurance Pool.

“This represents yet another disappointment for consumers associated with the cyclone reinsurance pool. First delays with the rollout, then news that savings would not be as promised and now operators of fixed marine infrastructure will not be covered” ACIL Chairperson Tyrone Shandiman said.

ACIL hold the view there is a need for the Cyclone Reinsurance Pool for the marine Industry – the need may not necessarily extend to all aspects of marine insurance, however fixed marine infrastructure is an area that needs further attention from the Federal Government.

Fixed infrastructure such as Marinas, Pontoons & Jetties are vital infrastructure for communities in Northern Australia where boating is a very important part of the economy and community. The Federal Government must take action to include fixed marine infrastructure into the Cyclone Reinsurance Pool.

The cost of insurance for Marinas & other fixed marine infrastructure has skyrocketed in recent years and some Marina operators are resorting to self-insuring, co-insuring (taking out partial cover) or taking out polices with excessively high excesses to reduce their costs.

The owners of the fixed infrastructure are also having to pass on the cost of insurance to those that use their facilities including businesses that utilise this vital infrastructure and this has a flow on impact to businesses and economies that use this infrastructure.

ACIL believe Federal Government intervention is required by including cover for fixed marine infrastructure into the pool. The average sum insured value of marinas based on our research is between $10,000,000 to $25,000,000, so the current $5,000,000 cap for commercial property under the pool would not be sufficient for this infrastructure.

We have sourced data (see table below) from four marinas over the last 6 years in Northern Australia and the key issues that marinas have faced are:

• The compounding effect of 15% increases over a 6 year period results in a 130% increase over this period.

• All four marinas with a $500,000 Excess.

• Some marinas not being able to source or afford 100% cover and partially insuring their marina.

ACIL have written to Assistant Treasurer Stephen Jones MP and are in discussions with other Labor senators and interested parties to discuss the need for Marine Insurance to be included in the cyclone reinsurance pool.

ARPC Confirm Short Term Letting In Strata Covered by Cyclone Reinsurance Pool

The Australian Reinsurance Pool Corporation (ARPC) have clarified that properties holiday let on a short term basis in a strata buildings will not be considered commercial for the purposes of determining eligibility for the Cyclone Reinsurance Pool.

The Cyclone Reinsurance Pool excludes buildings greater than $5,000,000 that have more than 50% commercial occupancy. There has been lack of clarity on whether short term holiday rentals would fall under the commercial classification.

Comments were made by APRC CEO Chris Wallace at a recent John Trowbridge forum “Energising The Strata Insurance Market - A blueprint for affordability, availability, competition” on 30th March 2023 clarifying the pools position on short term letting.

ACIL held concerns in relation to the classification of short term holiday rentals given tourism played such a vital role in communities in Northern Australia. We also had concerns for costs burden imposed on residential occupancies (such as owner occupiers & long term rentals) that had mixed occupancy with other short term holiday rentals.

“This clarification by ARPC should come as a great relief to many unit owners who own in strata buildings that have short term holiday rentals. This is more great news for consumers in Northern Australia. The cost of strata insurance for some buildings can be as much as twenty times the cost of insurance in other parts of Australia – this clarification will provide savings for these buildings when strata insurers come on board with the Cyclone Reinsurance Pool.”

ACIL are pleased with this recent development but believe broader eligibility of the pool is needed to assist the most in need consumers such as aged and disability care buildings and properties on Hamilton Island that operate like a strata building but are not titled as strata. We have made representations to the Assistant Treasurer Stephen Jones MP and are meeting other Labor party members to express our views on eligibility.

Contact the APRC via Alexander Drake, Head of Public Affairs enquiries@arpc.gov.au 02 8223 6777 for more information.

Further information about Australian Consumers Insurance Lobby can be found on our website https://www.acilobby.org.au/ For more information about this media release, contact Tyrone Shandiman on (07) 3185 5256 or info@acilobby.org.au.