Stakeholders in the insurance industry have responded this week to opposition leader Peter Dutton’s threat to break up Australia’s big insurance firms. Some reaction condemned the threat as populist rhetoric. Others suggested that a main cause of skyrocketing premiums is not insurer greed but the urgent need to meet climate risks with more resilience. Some pointed to government taxes on premiums.
On Tuesday, a letter to Dutton brought a different view. The Australian Consumers Insurance Lobby (ACIL), chaired by insurance broker Tyrone Shandiman, supported Dutton’s “tough posturing against the industry and the need for strong action to hold insurers accountable.”
Insurance Business approached other brokers for their reaction to the opposition leader’s comments.
“If the government would like to make insurance more affordable and break up the big four insurers
from being a monopoly over certain sectors or products,” said Adam Richardson (main picture, left), “rather than the government look to insurers and the base level of premiums they collect, the government should really look at the insurance taxes being applied.”
The practice leader for Bellrock Advisory mentioned the Emergency Services Levy (ESL), Government Services Tax (GST) and Stamp Duty.
“These taxes are on a tax ON TOP [Richardson’s capitalisation] of the insurer premiums, which are highly recessive, which is impacting the hip pocket!” said the Melbourne-based broker.
Wayne Knight (main picture, centre), executive director with Omnisure, also took issue with Dutton’s position.
“I disagree and I think they [politicians] always blame insurers,” he said. “Or they blame insurance brokers - we're in the middle of it - but insurers mainly.”
The Sydney-based broker said it is not the insurers’ fault when property is built in flood zones.
“There's a situation where the loss ratios in Australia over the last 10 years have been horrific due to these areas copping it,” said Knight. “So why doesn't that go back to the council or the authorities that are giving them permission to build in those areas? It comes back to the insurance companies.”
He described the risk situation faced by today’s underwriters.
“There are loss ratios and you're going to base your premiums on those loss ratios,” said Knight. “If there's constant flooding happening in Queensland, or cyclones, you're going to underwrite that accordingly because otherwise you're going to be broke within a few years.”
The broker said a major cause of the high premiums is that the billions of dollars of claims from natural disasters every year need to be underwritten. However, he said, there are other pressures also pushing up property coverages.
“Building materials have gone up, labour has gone up,” said Knight. “If you look at building a house today, it could have gone up about 40% in the last couple of years and those costs are added to the insurance costs and the premium.”
However, Sam Perera (main picture, right), agreed in part with the opposition leader’s view. The director of Perera Crowther Financial Services, a life insurance business, warned of the dangers of a concentrated insurance market dominated by a few main players.
“A similar trend is emerging in the life insurance market, which faces an increasing risk of becoming an oligopoly,” said Perera. “The viability of smaller insurers — critical for maintaining competition and diversifying the insurance pool — is under threat.”
“At the same time, distribution has declined significantly, while claims — particularly for total and permanent disability (TPD) insurance — have surged,” said Perera.
He said urgent action is needed to “cut through regulatory barriers and implement the Quality of Advice recommendations” or policyholders will continue to face rising premiums and the insurance pool will further contract.
“The situation is increasingly precarious,” said Perera.
Hall said insurers were “very aware” of the inflation impacts on premiums and the rising cost of weather events. He said Australia has a “very competitive” insurance market.
“The only sustainable way to address insurance affordability is to reduce or remove risks,” he said.
“This means investing in resilience-enhancing infrastructure, strengthening building stock and reforming land use planning, and requires significant investment from and collaboration with governments.”
Are you an insurance industry stakeholder? What do you think of the Coalition leader’s threat to break-up big insurance firms? Please tell us below.
