OUR POLICY ON RESOLVING THE INSURANCE CRISIS IN NORTHERN AUSTRALIA
The Australian Consumers Insurance Lobby Inc believes the issue of affordability and availability of insurance is a matter that must be resolved by Federal & State Governments. We are advocating for the following measures to be adopted by government as the most effective way to resolve this insurance crisis in Northern Australia.
GOVERNMENT BACKED RE-INSURANCE
The first measure we believe should be considered is extension of the jurisdiction of the Australian Reinsurance Pool Corporation to provide re-insurance to private insurance companies for specified catastrophic events where risk location is a major consideration for the risk profile and affordability and availability of insurance poses a problem for policy holders.
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To fund the reinsurance program, we believe the government should follow the current model of how Terrorism reinsurance is currently offered by the Australian Reinsurance Pool Corporation and make it mandatory for all policy holders with fixed property insurance to pay the levy and receive cover for the perils insured, with no provision to opt out.
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Pricing of the levy should be a offered on a tiered model similar to that already imposed by the existing terrorism levy. The levy would be a percentage of the insurers base premium that should be determined by government actuaries who are professionally qualified to price risk of specific events. As an example the percentage applied for the cyclone component of the levy may be:
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Tier A - 2%-5% (Properties south of 26th Parallel or greater than 100km from the coastline)
Tier B - 50% (Properties north of 26th Parallel and less than 100km from the coastline)
MITIGATION
Mitigation is frequently mentioned as the most sustainable way to reduce premiums. What is not clear however is who should fund the mitigation measures – for example the policy holder, the insurer or government.
Currently, there is no incentive for insurers or re-insurers to fund mitigation, because they are not guaranteed retention of the client after they finalise mitigation to see the benefit of their investment in mitigation.
If the Australian Reinsurance Pool Corporation (ARPC) were the sole provider of re-insurance for specified catastrophic events in Australia it would mean they would in effect be the sole beneficiary of any mitigation measures they pay for, therefore the ARPC would have more incentive to fund mitigation.
Subsequently, we are of the view that the ARPC's jurisdiction should also extend to funding mitigation measures (on a cost/benefit basis) that would have a direct impact on lowering claim expenses incurred by the ARPC and ultimately lower levies.
Examples of mitigation measures that could be funded include (but are not limited to):
- Cyclone resilience inspections every three to five years and the ARPC could issue grants for costs associated with building upgrades to make buildings they insure more cyclone resilient.
- Relocating homes in high risk areas after a major event (cyclone, flood, storm surge).
- Funding flood mitigation infrastructure (flood);
The Northern Australia Insurance Lobby believes a certain percentage of all levies collected should be used to fund mitigation - this percentage could be decreased over time.
STATE BASED STAMP DUTY
Stamp duties collected by state governments are based on premiums collected by insurers. When premiums are twenty times the cost in Northern Australia, so to is the amount policy holders pay in stamp duty. This means the burden of stamp duty falls more heavily on policy holders exposed to greater catastrophe and other risk.
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Due to the inequities that the current stamp duty model imposes on policy holders, the Northern Australia Insurance Lobby believes government stamp duties should be abolished for insurance products. This recommendation is in line with the Northern Australia Insurance Inquiry commissioned by the ACCC and recommendations from previous inquiries into insurance and taxation issues.
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If stamp duties are to be maintained, State Governments should find a way to reduce the tax burden on policy holders in high risk areas or use revenues from stamp duties to implement measures that assist in improving affordability and availability of insurance for policy holders in higher risk areas.
LAND USE PLANNING
To encourage better land use planning and management of building standards in high risk areas, the ARPC and all levels of government should have regular, open and transparent communication about building applications, with a shared goal of using planning proactively to minimise impacts of claims against the re-insurance pool (mitigation).
In cases where threat of catastrophe is considered unacceptable after building management standards are considered, managed retreat from those high risk areas should be considered.