General insurance body reiterates what needs to be done to narrow disaster insurance gap

General insurance body reiterates what needs to be done to narrow disaster insurance gap

Demand for insurance is outstripping supply and these pressures are creating a growing protection gap – the gap between the cost of recovering from an unexpected event and the insurance that’s in place to cover that event, CEO of the Insurance Council of Australia (ICA) Mr Andrew Hall said.

He said this in his opening statement on 5 February at an inquiry held by the House of Representatives Standing Committee on Economics into insurers’ responses to 2022 major floods.

Mr Hall added that closing the protection gap is a complex issue that can only be addressed by the combined efforts of all three levels of government and the insurance industry, working together to reduce risk and so moderate upward pressures on premiums.

He said, “The most immediate option to improve insurance affordability would be the abolition of A$6bn ($3.9bn) of annual state taxes on insurance, which are the second largest components of home premiums after the pricing of flood risk.

We commend the New South Wales and Tasmanian governments for recently moving to abolish the additional fire and emergency services levies on insurance in those states.”

He pointed out that there are around 230,000 properties in Australia that face a 5% risk of a flood each year and because of this, flood insurance is largely unaffordable for these homes and businesses.

Solutions

The ICA has long advocated for policy solutions to reduce risk in Australia, particularly for flood, including improved land use planning, better building standards, and investment in community mitigation infrastructure and household-level risk mitigation. 

The ICA strongly supports the agreement of the National Cabinet in December 2022 that “the days of developing on floodplains need to end”.

Moving from this agreement to specific policies and clear direction is now a matter of urgency and requires significant effort,” Mr Hall stressed.

While insurers are pleased with the establishment of the Hazards Insurance Partnership with the Federal Government, further partnerships between insurers and the Government will be vital to solving these problems, he said.

He also said, “I want to conclude by reiterating that the insurance industry acknowledges there were failures that impacted policyholders during the extreme 2022 floods and again apologise on behalf of the industry to those customers we let down.

Insurers have already implemented changes as a result of the lessons learned from the 2022 floods and they will be able to talk to these as they relate to their business when they appear.”

“Australian insurers seek to be at the global forefront of extreme weather responsiveness, while balancing a sustainable, competitive and affordable product that all Australians can benefit from,” Mr Hall said.

Between 22 February and 9 March 2022, widespread flooding in South East Queensland and New South Wales caused extensive insured losses across thousands of households and businesses. The event, known in the insurance industry as Catastrophe 221, was the costliest insured event in Australian history, with the loss estimated at over A$6bn.

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