Financial Rights Legal Centre (Financial Rights), a specialist free legal service provider, has welcomed the Australian government's design of a reinsurance pool for cyclones and related flood damage. However, it warned about insurance affordability issues in the country.
Financial Rights' submission to the Australian Treasury's consultation on a reinsurance pool for cyclones and related flood damage emphasised that additional measures are needed to address insurance affordability issues for people vulnerable to extreme weather and the impacts of climate change.
Financial Rights chief executive officer Karen Cox said they regularly provide legal advice and financial counselling to consumers across Australia who are underinsured or uninsured due to unaffordable home and contents insurance in some regions.
Financial Rights' submission recommended a taxpayer-guaranteed scheme accessible to Australians in high natural disaster risk areas rather than only to those living in Northern Australia.
“Access to insurance should be equitable and fair for all people across the country, and government intervention to address insurance affordability should consider all areas and all extreme weather events, including bushfire,” Cox said.
“There must be incentives for homeowners to mitigate risks where measures are effective and cost-efficient,” she added. “Equally building codes and planning policies should be appropriate to the level of risk in areas prone to extreme weather events.”
Cox said premium pricing and risk assessments should also be transparent, emphasising that consumers might change their behaviour with respect to risk mitigation if they were well-informed about their coverage and premiums.
“Greater contestability of pricing and risk assessments is needed. For example, enabling policyholders to challenge inappropriate, disproportionate, or unjustified premium increases will improve competition and increase knowledge of the risks and promote mitigation strategies,” she continued.
It is also crucial to ensure that the reinsurance pool initiative does not lead to more variation and complexity in insurance policies, such as distinguishing cyclones from other storms or limiting access to cover by proximity to a cyclone event, Cox said.
“Australians need standard cover and definitions so that they can compare apples with apples when buying insurance and are not caught out by unexpected exceptions and conditions at claims time,” she added.
