by By and large the findings were not surprising. It found the of risk of insuring properties in the north of Australia is much higher than in the rest of the country because of the risk of extreme weather. The 2019 Townsville floods were the most extreme recent example of a long-term (and growing) risk of living in tropical Australia.
The 592-page report found the average annual home and contents policy in the region cost $2500, compared to $1400 for the rest of Australia. For home only insurance, average premiums were around $1,900, more than double the rest of Australia, a $900.
Between 2007 and 2019, premiums rose by 178 per cent, more than three times the national average of 55 per cent. Average excess levels are also 50-60 per cent higher. As a result, the ACCC found evidence of growing rates of non-insurance.
Despite hiking premiums, insurers have made a net loss on northern Australian policies of $856 million over the last 12 years.
Many of the ACCC’s recommendations had already been published in earlier interim reports. They included scrapping stamp duty on insurance products, banning broker commissions, mandated clearer product disclosure, and the creation of a government-run comparison website.
Targeted relief
But the focus on subsidies was new. “Direct subsidies have the greatest potential to work in a targeted way to relieve some of the acute affordability and cost of living pressures facing consumers in higher risk areas, at a lower cost and more effectively than other measures,” the report said.
It preferred this solution to government reinsurance pools. It said such pools in other jurisdictions such as the National Flood Insurance Program and California Earthquake Authority in the United States, the Philippine City Disaster Insurance Pool and the Caisse Centrale de Reassurance in France had generally only been introduced when insurance or reinsurance was not available through private markets.
“This is not currently the case in northern Australia. Private insurance markets continue to supply insurance, including for cyclone and flood risks. As such, government insurers and reinsurance pools cannot be justified on the basis of availability concerns.”
Other new recommendations focused on building codes and planning, stressing the need for buildings that are built to withstand extreme weather, and better communication between insurers and planning authorities. This is an area the insurers themselves have lobbied hard on.
The Insurance Council of Australia welcomed the recommendations. “The insurance industry is already working with resilience agencies, scientists, local government, and the building sector to develop above code standards for homes and commercial properties,” chief executive Andrew Hall said.
Mr Hall also welcomed the recommendation to scrap stamp duty. “We agree the burden of stamp duties is falling more heavily on consumers exposed to greater natural disasters and other risks and support the idea of reforms to remove or re-base state and territory stamp duties on home, contents, and strata insurance products. This has the potential to immediately relieve pricing pressure for all consumers in northern Australia, he said.
Climate change
Insurers have tended to link growing extreme weather claims with climate change. The ACCC’s report included a section on the effects of climate change, but did not find these effects had had a discernible impact on premium pricing yet.
The Financial Rights Legal Centre called on the government to implement all of the ACCC’s recommendations.
We support the ACCCs conclusion that direct subsidies have the greatest potential to work in a targeted way to relieve some of the acute affordability and cost of living pressures facing consumers in higher risk areas,” director of casework Alexandra Kelly.
She said last summer’s extreme bushfires, while mostly in southern and southeastern Australia, demonstrated the importance of transparency of disclosure in insurance contracts, as some households found themselves underinsured.
This leads to ongoing insurance claims disputes over whether an excess should be paid, the scope of works and cash settlement offers, underinsurance borne of an incorrect sum insured for their property and temporary accommodation, she said.
