The cost of insuring property in Northern Australia – battered by cyclones every year – has seemed an insurmountable problem since premiums jumped around eight years ago.
Householders and business complain they can’t afford to insure their properties while insurers say the risk of loss is high and they have to price for it. Some insurers have left the market, deliberately priced themselves out of it or stopped taking business when their exposure reaches a certain level.
The Australian Competition and Consumer Commission (ACCC) says insurance markets in northern Australia are characterised by “high prices, high costs and low profits”.
The consumer and business regulator notes that governments have committed to developing the north (home to 5 per cent of Australia’s population) and encouraging industry and individuals to move there. This provides an additional reason to make insurance more affordable and to stem the growing rate of non-insurance, it says.
In 2018-19 the average annual premium for house and contents in northern Australia was $2500, compared with an average of $1400 in the rest of the country.
Owners of strata properties are required by law to have insurance but in Queensland, Western Australia and the Northern Territory each of the leading insurers has 40 per cent of the market. Choice is limited and prices are high.
The ACCC will examine strata insurance more closely this year as well as the extra charge imposed on consumers who pay their premium monthly rather than in an annual payment.
The ACCC began its inquiry into residential, not business, insurance in 2017 and released its second interim report just before Christmas 2019 (on 20 December). The final report is due on 30 November 2020.
This latest report recommends:
- abolishing, or re-basing, stamp duty on home, contents and strata insurance products (stamp duties are levied by state governments)
- revising and mandating standard cover to help consumers choose and compare
- prohibiting conflicted remuneration for insurance brokers
- investigating a national home insurance comparison website, and
- requiring insurers to tell consumers about potential mitigation options and consequent savings on an insurance premium.
The ACCC says some consumers could have their insurance subsidised but that might encourage people to take on more risk.
It says householders who have worked to reduce their risk are not being rewarded with lower premiums.
The insurance industry has long called for risk mitigation, generally at the expense of governments, but the ACCC says the potential of mitigation to lower premiums can be limited.
Mitigation would primarily work for flood risk but although works for reduce flood risk can be very effective on reducing risk and premiums “they can also involve significant costs”.
In 2020 the ACCC will work with insurers and planning bodies on whether sharing information can improve affordability.
It says that changes to land planning and building standards could reduce risk for future building. That won’t help existing building owners but the ACCC says it could prevent the problem of insurance affordability in northern Australia becoming significantly worse.