The head of the Gillard government's probe into disaster insurance has acknowledged that some households will struggle to get flood insurance even if the industry is compelled to provide coverage.
THE head of the Gillard government's probe into disaster insurance has acknowledged that some households will struggle to get flood insurance even if the industry is compelled to provide coverage.
John Trowbridge, who chairs the Natural Disaster Insurance Review, said private insurers had already attempted to increase their level of flood cover after being ''badly stung'' by the backlash that followed the Queensland flood disaster.
Australia's two biggest insurers will this morning hand in submissions to the National Disaster Insurance Review. Both are strongly resisting calls for compulsory flood coverage, arguing it would push up premiums and ultimately reduce competition because it could cause global reinsurers to pull coverage from the market.
Suncorp, one of the country's biggest insurers, has said the importance of flood mitigation should be stressed to householders.
''The fact is most Australian property owners do not need or want full flood insurance because over 95 per cent of Australian homes are located outside major flood zones,'' Suncorp chief executive Patrick Snowball told a recent forum.
Insurance Australia Group chief executive Mike Wilkins has cautioned against the government launching a national disaster insurance scheme, claiming it could lead to risky housing developments in flood-prone areas.
The Insurance Council of Australia will release its submission this morning, proposing a rebate scheme on insurance premiums for more than 130,000 properties in high-risk flood zones.
This scheme would be funded out of the more than $4 billion collected each year by state governments from taxes on insurance policies, Insurance Council chief executive Rob Whelan told an insurance briefing last week.
The Insurance Council is also expected to back risk-mitigation programs to lower the risk of flooding on properties.
The National Disaster Insurance Review is examining several options on flood protection for the industry to consider. They include compulsory flood cover for all houses; the ability for households to opt out of flood cover to save on insurance costs; and a flood insurance pool for high-risk houses.
Speaking at an Australian Centre for Financial Studies forum, Mr Trowbridge cautioned that, even under a compulsory scheme, insurance might not be available to everyone in flood-prone areas.
''Flood cover won't be completely available because there are risks that insurers find unattractive, they don't want to write them so they price them appropriately,'' he said. ''So, no matter how far the industry goes in trying to offer cover, it won't be able to satisfy everyone. If they offer it, then it might be on a basis that people can't afford.''
The Insurance Council estimates that 7 per cent of Australian properties are in flood-risk zones.
Frequently Asked Questions about this Article…
What is the National Disaster Insurance Review and why should investors care about flood insurance changes?
The National Disaster Insurance Review, chaired by John Trowbridge, is examining options for how flood insurance is provided in Australia (including compulsory cover, opt-out arrangements and a flood insurance pool for high‑risk homes). Everyday investors should pay attention because outcomes could affect insurers' costs, insurance premiums, competition in the market and the value or insurability of flood-prone properties.
Is compulsory flood insurance for all homeowners currently planned?
Compulsory flood cover is one of the options under consideration by the review, but it is not decided. Major insurers are resisting compulsory cover, warning it could push up premiums and reduce market competition, so the review is still weighing alternatives.
If flood insurance becomes compulsory, will everyone be able to get affordable flood cover?
No — the review chair John Trowbridge has warned that even under a compulsory scheme some households may struggle to obtain or afford flood cover. Insurers may choose not to write certain high‑risk policies or may price them at levels that are unaffordable for some homeowners.
How might compulsory flood insurance affect insurance premiums and market competition?
Large insurers argue compulsory flood cover could raise premiums and reduce competition. They say higher exposure might prompt global reinsurers to withdraw coverage from the market, which would further pressure prices and choice for consumers.
What alternatives to compulsory flood cover are being proposed by the insurance industry?
The Insurance Council of Australia has proposed a rebate scheme for more than 130,000 high‑risk properties, funded from the more than $4 billion a year collected by states from insurance taxes. The council is also expected to back risk‑mitigation programs. Suncorp has emphasised stressing flood mitigation to householders as another focus.
How many Australian properties are considered in flood‑risk zones?
According to the Insurance Council, about 7% of Australian properties are in flood‑risk zones. Suncorp has noted that over 95% of Australian homes are located outside major flood zones.
What specific policy options is the review considering for high‑risk houses?
The review is looking at several options: making flood cover compulsory for all houses, allowing households to opt out of flood cover to save on premiums, and creating a flood insurance pool to cover high‑risk houses.
What practical steps do insurers recommend homeowners and property investors take about flood risk?
Insurers such as Suncorp are emphasising flood mitigation measures for householders, and the Insurance Council is expected to support risk‑mitigation programs. While policy decisions are pending, focusing on mitigation and understanding a property's flood risk can be important for investors assessing insurability and future costs.
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