The Australian Government Actuary (AGA) has released its findings on the state of the insurance market in Queensland and found that consumers have faced an 80% rise in premium rates in eight years.
The independent actuary found that over the same period, average home and contents rates across Australia had increased by about 25% and the increase in Sydney and Melbourne was just 12% by comparison.
Taking into account three major weather systems since 2005-06, the actuary found that North Queensland faces a much more volatile insurance environment thanks to its location and outlined insurer reaction to these disasters, developments in catastrophe modelling and increases to the costs of catastrophe reinsurance as key drivers for the increases experienced.
CEO of ICA Rob Whelan said the findings highlight the need for caution in relation to the planned government-run aggregator for the area and the introduction of unauthorised foreign insurers to the Australian market.
“Price comparison websites and allowing home owners to be exposed to the risk of taking out cover with unauthorised and unregulated foreign insurers will do nothing to reduce costs or vulnerability.
“The most effective and only sustainable way to encourage greater competition and lower premiums is for governments to take appropriate actions to lower the vulnerability of communities in North Queensland to the constant risks of natural disasters.”
Whelan defended insurers in the region as, he states, that even with the price rises they are losing money in a volatile market.
“Over a long period, insurers have paid out $1.40 for every $1 they receive in premiums in North Queensland. They are losing money in an unsustainable fashion due to the fact communities in the region are frequently hit by cyclones.
“However, despite these losses, insurers have remained in the market and have helped rebuild North Queensland communities following some of Australia’s largest natural disasters of recent years, including Cyclone Larry ($540 million in insurance costs), Cyclone Yasi ($1.4 billion), and ex-TC Oswald ($977 million).
“Actions to increase competition in a market where the competitors all consistently lose money will be unlikely to have as strong an effect as solving the underlying problem – many properties in North Queensland experience regular extensive and expensive damage due to the impact of large cyclones.”
“The Australian Government Actuary estimates that insurers would still have been operating at a considerable loss if today’s higher premiums had been paid by householders consistently over the past eight years.”
Whelan stressed the need for mitigation to help both consumers and insurers in an otherwise difficult market.
“The AGA report shows the cost of cyclones is the single largest contributor to the pricing difference between North Queensland and other markets. This is also reflected by the price increases imposed by international reinsurers on local policyholders.
“Prevention by reducing the impact of cyclones on these communities, rather than market intervention, is the only long-term solution.”
