A price comparison site isn’t the answer in North Queensland according to the General Manager of Corporate Affairs at
Allianz, but a subsidy delivered via reinsurance pool could ease the problems.
Nicholas Scofield suggested that the current government proposals leave the risk of an industry reputational disaster when another flood or cyclone hits and he suggested that some form of subsidy to bring extreme premiums back to a more affordable level could be the answer.
“Virtually every other country where flood insurance is available has a subsidy whether it is government based or a partnership between government and business.
“Look at private health insurance, look at CTP insurance if it wasn’t for regulation, higher risk individuals could not afford cover, for example, no-one under 25 would be driving a car.
“Flood only impacts a very small proportion of properties in Australia; say 5% of homes that get the high or extreme premiums, another 5% with low to moderate risk but about 90% have no flood risk. So, the risk is highly concentrated among a relatively small number of properties.
“One answer is some sort of subsidy or reinsurance pool.”
Pointing to the controversial Flood Re plans the United Kingdom has installed to lower home insurance premiums with a nationwide levy, Scofield noted that a reinsurance pool could help drive down prices and ensure that home and business owners have the correct cover.
Scofield noted that Allianz had put forward a reinsurance proposal three years ago to the Natural Disaster Insurance Review that followed the 2011 Queensland floods and Cyclone Yasi but a lack of appetite for the pool saw the idea shelved.
Mitigation is also important for flood risk and Scofield noted the difficulty and cost of mitigation but still believes it offers a good solution, particularly with regards to flooding.
“You can never eliminate flood risk but it can be significantly reduced, but only in areas where flood mitigation can be achieved.”
Speaking of the proposed plans, Scofield doesn’t believe they’ll be effective. “The price comparison site and unauthorised foreign insurers are examples of ineffective ideas that have emerged and are going to be implemented.
“Our view has always been having premiums for average people of $10, 000 to $20, 000 is unsustainable – something’s got to give. What will give in the meantime is people will drop insurance, under insure or undertake various other unhelpful behavioural responses but ultimately, after another big flood or cyclone when prices go up again or people find they haven’t got insurance – there will be a political reaction.”
