A $10 billion reinsurance pool to underwrite cover for cyclone and cyclone-related flood for privately-owned homes, strata corporations and small businesses, and a $40 million investment in making older strata buildings more resilient to extreme weather events, will be established to offer northern Australians more affordable and accessible home and business insurance.
The reinsurance pool would cover cyclone and related flood damage in northern Australia from 1 July 2022, and would be backed by a $10 billion government guarantee, reducing insurance premiums across Northern Australia by over $1.5 billion for households, strata and small businesses over 10 years.
More than 500,000 residential, strata and small business property insurance policies in Northern Australia are expected to be eligible to be covered by the reinsurance pool. The Prime Minister Scott Morrison said the plan shows the government is listening to Australians who live in the North of the country.
“We believe in the future of Northern Australia. This means we need to take further action to boost the resilience for Australians to live and work in northern Australia,” he said.
“I’ve listened to our local MPs and senators, I’ve sat down with residents and discussed the issue. Homeowners and businesses have been faced with crippling insurance costs, and in some cases, can’t get insurance at all. It’s not ok, and we’re going to change that.
“Our plan will give more Australians in cyclone-prone areas access to affordable insurance.”
The recent ACCC Northern Australia Insurance Inquiry supported insurers’ pricing practices, finding the main driver of higher premiums in northern Australia was the higher risk of natural perils like cyclone and cyclone-related flood.
The same inquiry found that in 2018-19 insurers in northern Australia lost approximately $208 million, and over the 12 years from 2007-08 suffered aggregate losses of $856 million in real terms in the region, highlighting the pressure insurers are under to deliver for customers in a way that is financially sustainable.
Treasurer Josh Frydenberg said a Treasury-led Taskforce will continue work on this to develop the final design of the reinsurance pool in close consultation with industry, with details to be finalised following that consultation process.
“More affordable insurance means peace-of-mind for hundreds of thousands of Australians across Northern Australia, knowing that their economic livelihoods are protected,” he said.
The National Insurance Brokers Association (NIBA) CEO, Dallas Booth welcomed this announcement, “Insurance brokers in northern Australia have been working very hard in recent years to obtain appropriate insurance cover for their clients at affordable rates. The market has been extremely difficult, and the underlying causes of these issues were well identified by the ACCC.”
Booth added that NIBA looks forward to working with the Federal Government, the Insurance Council of Australia and the Association’s members in northern Queensland and northern Australia more broadly to develop and implement this important solution.
Minister for Agriculture, Drought and Emergency Management David Littleproud said, “It will put more money back into the pockets of those in the cyclone and flood prone areas of far north Queensland and the savings will build in their bank accounts for years to come.”
The Government is also announcing a plan to specifically reduce insurance costs for strata properties, by committing $40 million for the North Queensland Strata Title Resilience Pilot Program, to start in 2022.
Strata properties face some of the worst insurance affordability pressures in Northern Australia. The ACCC noted that, in 2018-19, the average strata premium was $6,800 in North Queensland, compared with the Australian average of only $3,300. Strata residents have few options other than to pay this because strata properties are required to hold insurance under Queensland legislation.
Like Booth the Insurance Council of Australia (ICA) CEO Andrew Hall also welcomed the announcement, “Governments at all levels need to look at other impediments to lower premiums, including the elimination of State insurance stamp duties and levies, improving resilience standards in building codes and land planning decisions, and lifting investment in mitigation infrastructure and household resilience programs.”
“We look forward to working with the Government on the consultation and design process.”