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.