Allianz: a pool is the best way to fix affordability By Nicholas Scofield, Chief Corporate Affairs Officer, Allianz Australia If large numbers of Australian homeowners cannot afford property insurance due to their exposure to natural peril risk, not only do they have problems, so does the insurance industry. Apart from our inability to offer affordable protection to the whole community (which it can reasonably expect), one of those problems is the risk of ill-considered government intervention. In Allianz’s view the insurance affordability issues faced by some homeowners in north Queensland, which materialised after 2011’s Cyclone Yasi makes government intervention inevitable, more so after further premium increases and restrictions on cover following the February 2019 Townsville flood. Allianz strongly supports intervention to reduce premiums in the form of government-funded mitigation, both public (for example flood levies) and private (that is, at the property level). However, mitigation alone cannot address all North Queensland homeowners’ insurance affordability issues, at least
in the short to medium term. Queensland Government stamp duty on property insurance should be abolished, but that would only provide relief of around 10% and inflationary premium increases would wipe out any benefit in a few years. Only intervention that directly reduces those home insurance premiums that the community regards as unacceptably high can solve the affordability problem. There are different measures a federal government could use to address affordability concerns. These include mandated community rating and direct premium subsidies (for example, income tax rebates) as occurs in CTP and/or private health insurance. However, Allianz believes the consequential regulation of property insurance covers and premiums that would inevitably follow would be highly disruptive and detrimental to insurance markets. Of the different forms intervention could take to address affordability issues driven by cyclone risk, Allianz’s view is that a
government-backed reinsurance facility, funded out of consolidated revenue, would be the least worst, as well as the most effective, efficient and least disruptive to insurance markets. In terms of effectiveness, the cost of cyclone reinsurance can comprise more than one-third of the pre-tax home insurance premium for a house located in coastal north Queensland. Reducing or eliminating this cost could reduce some policyholders’ premiums by up to 50%. To reduce the impact on commercial property insurance premiums from the lack of access to and/or the high cost of terrorism reinsurance, the Australian Reinsurance Pool Corporation (ARPC) has proved to be an efficient and effective mechanism, and has had no discernible disruptive impacts on the commercial property insurance market. A cyclone reinsurance pool established under the ARPC architecture could be expected to work just as effectively and efficiently.
Suncorp: why mitigation is the best answer By Darren O’Connell, Executive General Manager, Insurance Portfolio and Products, Suncorp It’s important to start by acknowledging that insurance in northern Australia is expensive and a significant cost of living pressure. However, unless we change the underlying risks that drive the high prices, anything else will be a band-aid solution. Put simply, insurers, government and individual homeowners all have a role to play in lowering the risks so that insurers can lower the price. Instead of investing in practical solutions that can make a difference right now, we continue to investigate, again and again, a reinsurance pool. The ACCC and APRA have both recently explored if this is the right solution, and have landed on the same answer – no. As northern Australia’s largest insurer, we’ve spent the past 100 years understanding insurance in the region and supporting countless people and communities recovering from devastating natural disasters. We are acutely aware and uniquely placed to understand the
importance of insurance for individuals, businesses and communities in the north. While we remain unconvinced that a reinsurance pool will work, we have committed to constructively working with the Government and industry on this. It would be complex and difficult to design, and potentially very costly for all Australian taxpayers without a clear exit strategy. Let’s not forget a reinsurance pool can only achieve a significant reduction in premiums by providing a subsidy, which will dilute the price signal. It does nothing to reduce the emotional and physical toll on people and communities that will be affected by the inevitable cyclones, floods and fires. A reinsurance pool does nothing for this heartbreak. Any action must address the main driver of high home and contents insurance premiums in the region – the physical impact on homes due to the increasing severity of natural disasters both now and in a changing climate.
We can build a more resilient northern Australia by improving building standards for all natural hazards, limiting the construction of new homes in floodplains and high-risk bushfire zones, vegetation management and building flood levees where needed. We also need to encourage and reward homeowners for protecting themselves, including with cyclone resilience measures like window shutters, reinforcing garage doors, and re-roofing non-cyclone rated homes. These are proven to go a long way to reducing the risk, and in turn lowering insurance premiums. Suncorp may sound like a broken record on the need for more focus on mitigation and resilience, but that’s because it works. This has been proven in Roma and other towns following the construction of flood levees, and for homeowners in north Queensland who have strengthened their homes against cyclone impacts through our Cyclone Resilience Benefit. Lower the risk, lower the price.