Government to Increase Affordability of Insurance
THU 28 FEBRUARY 2013
Prime Minister, Minister for Financial Services, Minister for Emergency Management, Minister Assisting in Queensland Flood Recovery
The Gillard Government will invest $100 million over two years to reduce flood risk and bring about real reductions in insurance premiums.
The National Insurance Affordability Initiative will invest $50 million a year in targeted flood and other natural disaster mitigation measures, as well as establish a National Insurance Affordability Council.
The Council will manage the national coordination of flood risk management, make recommendations to the Government on flood and other natural disaster mitigation projects and undertake other functions directed at reducing natural disaster insurance premiums.
The Government has identified three priority areas of work for the Council to commence immediately. This includes a $7 million contribution to building the Roma levee and $10 million to upgrade flood defences in Ipswich. The Government will make available up to $50 million over two years to any NSW Government proposal for flood mitigation in Western Sydney by raising the Warragamba Dam.
Despite a series of significant reforms to the flood insurance market by the Gillard Government, in flood prone areas affordability of flood cover remains a problem.
Minimising damage from flood and other natural disasters is the only sustainable way to reduce insurance premiums over time. Experience in Australia and internationally has shown that mitigation can sustainably reduce insurance premiums.
For example, average insurance premiums in Roma are currently around $3,000. This is almost triple comparable premiums in nearby Chareville (which has a flood levee) of around $1,200. Suncorp has estimated that the construction of a flood levee by the Goondiwindi Council reduced insurance premiums by an average of 33 per cent.
Government expenditure on natural disaster recovery over the last 4 years has amounted to more than $6 billion. As well as reducing private insurance premiums, this initiative has the potential to save expenditure on disaster recovery across all levels of government.
Given that the States and Territories are principally responsible for disaster mitigation, we hope that they will support these initiatives by increasing their own contributions to similar projects.
Rather than have taxpayers cross-subsidise insurance premiums for those in areas of high risk, this initiative will identify and supplement the funding of mitigation works that will have a real impact in terms of lowering risk and achieving sustainable reduction of insurance premiums in areas exposed to high risk.
The Council will also complement existing flood risk management strategies by ensuring that Government action in areas such as flood mapping aligns with insurance industry needs and assists in the goal of reducing premiums.
The Council will also closely track developments in strata title insurance markets in Northern Australia. Work is being undertaken in Australia by James Cook University and the Insurance Council of Australia on assessing the vulnerability of strata-title buildings in tropical Australia. The Council will consider whether there is a role for Government in sponsoring mitigation work to alleviate insurance premiums in those regions.
The Government has consulted with the insurance industry on today’s announcement and the Insurance Council of Australia has endorsed the Initiative and the establishment of the Council.