Insurance market has failed Queenslanders, parliamentary hearing told

The failures of Australia’s insurance market have been laid bare in an explosive hearing.

The insurance market has failed regional Queenslanders, with some unable to get insurance, while others pay “20 times” as much as property owners in Brisbane and Sydney for cover, a Senate committee has been told.

Proposed legislation is before federal parliament to establish a reinsurance pool for cyclone and related flood damage, as part of a government pledge to ensure Australians in cyclone-prone areas have access to affordable insurance.

More than 880,000 residential, strata and small business property insurance policies in northern Australia are expected to be eligible to be covered for risk of cyclone and related flood damage, the government says.

Adrian Coolwell cleans up after the Brisbane floods. Picture: NCA NewsWire/Tertius Pickard

Northern Australia Insurance Lobby chairman Tyrone Shandiman, whose group represents consumers, said he broadly supported the legislation as a way to make insurance cheaper and more available in northern Australia.

But he remained concerned about who would be eligible.

“We just don’t know what impact the reinsurance pool will have on policyholders not covered by the insurance pool,” Mr Shandiman told a Senate, Economics Legislation Committee hearing on Tuesday.

“There are some things we feel need to be tweaked, not necessarily immediately, but in future reviews of the legislation.”

The Army cleans up in flood-affected areas of Queensland. Picture: NewsWire / Sarah Marshall

Mr Shandiman said his group believed the reinsurance pool should be the government’s way of addressing failures in the insurance industry.

“We definitely agree there is a market failure,” he said.

“We are coming across clients that can’t get insurance, they are paying 20 times as much for insurance in their properties that are similar in Brisbane and Sydney, with $500,000 cyclone excesses.

“If that’s not a market failure, then I’d hate to see what a market failure actually was.”

Mr Shandiman was concerned the reinsurance pool limit of $5 million for strata-titled accommodation and aged care was not enough.

“We don’t want to see, you know, international hotel chains like Shangri-La and Hilton accessing this reinsurance pool,” he said.

“But we do feel strongly buildings under a strata title that are over $5 million with accommodation use purposes should be considered in the reinsurance scheme.”

He said the government had agreed outside of the legislation to review eligibility after 12 months.

The pool wouldn’t cover events such as the recent floods, the RACQ says. Picture: NCA NewsWire/Tertius Pickard

Queensland-based Sure Insurance managing director Bradley Heath said it was committed to a government reinsurance pool, but remained concerned current design flaws would “almost certainly” mean price hikes for its customers.

Sure had proposed insurers be allowed to charge less than the pool price for a particular property and retain the risk rather than use the pool. It also called for a ban on insurers charging more than the pool price.

“Regrettably, both of these safety nets have not been included in the pool design,” Mr Heath said.

He estimated this would “almost certainly” deliver price rises for a large proportion of its tens of thousands of customers and potentially other insurers.

Meanwhile, RACQ group executive of insurance Tracy Green called for the pool claims period to shift from a “very narrow period” of 48 hours after a cyclone to seven days.

The insurer also said the bill should be designed to include cyclones, floods, storm surge and bushfire exposures to future proof against a changing climate.

“The current event that we were dealing with over the last couple of weeks and now also moving into NSW, is a rainfall and flood event, not associated with a cyclone. So that would not be covered by the pool,” Ms Green added.

Weather-related disasters are increasing with climate change, experts say. Picture: NewsWire / Sarah Marshall

Economic and social research expert Dr Antonia Settle from the University of Melbourne said the reinsurance pool failed to address the needs of low income households.

“The reinsurance pool simply makes it cheaper for insurance companies, with no targeting and no detail around if and how those discounts are passed through to consumers,” she told the committee.

Dr Settle said we were already seeing clusters of uninsured low-income households in risk-prone regions and warned of the need to focus on social equity, “otherwise we can have real segregation”.

Some countries had programs to move houses from flood zones to higher ground or back from the coast to allow greater natural defences such as dunes to develop along the shorelines, she added.

“There is a point where it is not economically feasible to rebuild and rebuild and rebuild in places that are recurrently facing … weather related disasters, because we know that climate change is increasing these kinds of disasters,” she said.

Some insurers are refusing to cover disaster-prone areas. Picture: NewsWire / Sarah Marshall

Queensland Liberal National Senator Susan McDonald told the hearing some insurers had advertised they will not insure properties “north of the Tropic of Capricorn”.

“I’m, as a North Queenslander, personally outraged when I see people advertising that they won’t go north of the Tropic of Capricorn,” she said.

“I think it’s offensive.

“They don’t know what they’re missing out on.

“Those of us who live in the north, you know, perhaps we don‘t want them there anyway.”

The reinsurance pool will backed by a $10 billion annually reinstated Commonwealth guarantee.

It aims to ensure Australians in cyclone-prone areas have access to affordable insurance.

Prime Minister Scott Morrison said the pool is expected to reduce insurance premiums by up to $2.9 billion for eligible household, strata and small business insurance policies over 10 years.

“This is about making northern Australia even more resilient and liveable,” he said.

The pool is expected to start on July 1.

Northern Australian homeowners with the most acute cost pressures are expected to reap from up to 46 per cent premium discounts under the plan, Mr Morrison said last month.