The report, released on Friday, backed mitigation as the best way forward when compared with a mutual or reinsurance pool.
“Mitigation to reduce the risk of damage from cyclones is the only way to reduce premiums on a sustainable basis,” the report notes.
“It was widely considered by stakeholders that encouraging mitigation should be part of any Government
response to the rise in insurance premiums.
“A concern is that policy measures that work only to reduce premiums may dampen incentives for mitigation. Further, without action on mitigation, the benefits of any measures taken by the Government
to lower premiums would be reversed upon Government
Minister for small business and assistant treasurer, Kelly O’Dwyer, spoke on the release of the report at the Insurance Council of Australia
(ICA) Annual Forum and said that the mutual or reinsurance pool options remained too costly for taxpayers and encouraging mitigation was “essential.”
“The Taskforce looked very closely at the scope for Government
intervention in this market, as well as the risk to the Government
balance sheet,” O’Dwyer said.
“Using extensive modelling to assess the probability of these weather events, the Taskforce predicts that Government
support for a mutual or a reinsurance pool could be very costly for the taxpayer.
“The Taskforce found that either of these options would involve substantial cost and risk to the Government
and the taxpayers.
“For example, the Taskforce calculated that for a scheme that would on average lower premiums by 10 to 15 per cent there is a 10 to 20 per cent chance that it would cost the Government
more than $2 billion over 10 years and a 5 to 10 per cent chance the cost would be more than $5 billion.”
The report was roundly welcomed by the industry as Queensland-based broker, Robert Cooper, told Insurance Business
that he agreed with the findings.
“Mitigation measures may vary in a number of ways, but there is no doubt having a much stronger building code will make homes more cyclone resistant and can be done easily for new homes being built, but those being rebuilt following a cyclone are likely to be underinsured, but increasing sums insured will increase premiums,” Cooper said.
“However, a government subsidy to retrofit all homes to be more cyclone resistant, will have a long term benefit on insurance premiums and also create a lot of work for local industry to do this which will help these regions economically.
“To what degree they go to obviously will be influenced by how much government is willing to spend. The main point is it is better than subsidising premiums.”
welcomed the release of the report with Suncorp
Insurance CEO, Anthony Day, noting that certain aspects of mitigation should be prioritised.
“The mitigation options outlined in the report, including stronger building standards, better retrofits for older homes, mitigation awareness campaigns and making insurance more responsive to mitigation, are exactly what’s needed,” Day said.
“In Northern Queensland alone we know there are 100,000 homes that may not be up to the latest cyclone building standards, and this must be prioritised and addressed.
“We have spent too much on rebuilding communities rather than investing in their protection.
“Now is the time to address this imbalance by investing in disaster prevention.”
Andy Cornish, chief executive of the Australian consumer division of the business, said that the insurance industry needs to do more to help educate those in high-risk areas of Northern Australia in the best ways to mitigate.
“We believe if there is Government
intervention in Northern Australia, it should be focused on reducing vulnerability through land use planning, building codes and better funding for mitigation and retro-fitting.
“We also know greater information sharing that provides more access to data will give residents the opportunity to make more informed decisions and actively manage their risk.
“Our industry needs to do more to help residents understand their risks and how they can reduce them,” Cornish continued.
Rob Whelan, ICA CEO, welcomed the findings of the report but urged Government
to closely consider the ICA’s alternative proposal, A Third Way.
“The ICA welcomes the Taskforce’s emphasis on prevention and mitigation: improving older properties to make them stronger; strengthening building codes; and better land-use planning to ensure developments in cyclone-exposed areas are appropriate,” Whelan said.
“A Third Way proposes the government provides short-term, targeted subsidies to retrofit the roofs of low-income residents. By reducing the risk of cyclone damage, premiums can be lowered,” he said.
“The ICA and its members welcome further opportunities to work with governments and communities to improve Northern Australia’s ability to withstand and recover from cyclones.”
O’Dwyer confirmed that the Government
will consider the options the report lays out and provide a detailed response by 30 June 2016.
The full report can be viewed on the Treasury website
The Northern Australia Insurance Premiums Taskforce has released its final report which calls mitigation the “only way to reduce premiums on a sustainable basis.”