7 October 2015
Insurers propose practical solution to resolve North Queensland premiums issue
Short-term targeted Federal Government subsidies that improve the cyclone resilience of older homes in North Queensland will be the most effective, low-cost and sustainable way of protecting communities while also reducing insurance premiums.
The subsidy proposal, developed by consultants Urbis for the Insurance Council of Australia (ICA), has been submitted to the government’s Northern Australia Insurance Premiums Taskforce as a realistic alternative to much more expensive proposals under consideration.
ICA CEO Rob Whelan said: “Neither the mutual nor reinsurance options being actively examined by the Taskforce will reduce or prevent the property damage that cyclones cause – and that’s the primary contributor to insurance premiums in North Queensland.
“The insurance industry is proposing A Third Way that would fix the bulk of the problem at a relatively low cost to the taxpayer. Fixing the roofs on pre-1981 homes will provide a lasting benefit to householders and communities, and prevent much of the emotional and financial heartache that is unfortunately felt by too many Australians in the north each year.”
A Third Way proposes:
- The Federal Government will pay up to 75 per cent of the cost of retrofitting the roofs of low-income residents using an over-batten system, capped at $11,250
- The scheme will run for just over seven years and cost a total of $361.2 million
- Strata complexes can also take part
- Participating households will be eligible for a home insurance premium rebate of 20 per cent for up to two years while work is undertaken
- Lowering the risk of damage will also result in ongoing premium relief
Modelling for the ICA predicts more than 20,000 homes and 5000 strata units will qualify for the subsidy.
Mr Whelan said: “This is the most sensible and sustainable solution on the table. It will help those North Queensland households that have the most need of assistance. It will not require perpetual taxpayer funding or new taxes on all Australians that would last for generations and cost billions of dollars.
“It meets the recommendations of the Productivity Commission’s Report into disaster relief funding, which concluded taxpayers are better off funding resilience and mitigation than paying tens of millions of dollars to repair communities after every catastrophe.
“And it will fulfil the Taskforce’s remit – to reduce premiums. Household premiums will fall, in many cases by hundreds or even thousands of dollars, when properties are more capable of withstanding the impact of the cyclones that strike northern Australia each year.”
Mr Whelan said research conducted by Crosby Textor found 80 per cent of North Queenslanders would be willing to take cyclone-proofing measures if it resulted in a reduced home insurance premium.
“A Third Way gives households in cyclone-prone regions the opportunity to protect their properties at a fraction of the regular price, helping to drive down premiums at the lowest cost to the taxpayer,” he said.
“However, the other options under active consideration – a mutual or a reinsurance pool arrangement – would require long-lasting government intervention in the private insurance market. These options would expose all taxpayers to potentially billions of dollars in costs without fixing the real problems. And these are unlikely to significantly lower premiums.”