Chapter 1Introduction
1.1On 11 October 2022, the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP, referred an inquiry into the operation and implementation of the Cyclone Reinsurance Pool (the pool, or CRP) to the Joint Select Committee on Northern Australia.
1.2Northern Australia is defined as all of the Northern Territory, and those parts of Queensland and Western Australia that intersect with the Tropic of Capricorn, including the Indian Ocean Territories of Christmas, Cocos and Keeling Islands.
1.3As a parliamentary committee, the Joint Select Committee on Northern Australia is responsible for scrutiny and oversight of the work of executive government related to Northern Australia. In particular, the committee’s role includes:
ensuring that government policy and programs for Northern Australia are fit-for-purpose and address the issues that they are designed to address; and
making recommendations to executive government to change or improve policy and programs for Northern Australia, based on issues identified by civil society, peak bodies, businesses and individuals.
1.4The committee’s interest in conducting an inquiry into the pool arose because of concerns about:
the implementation of the pool to date;
the reasons for a slow initial take up of the pool by insurers;
why the pool appears to not yet have reduced insurance premiums for many consumers despite this being its key objective; and relatedly
community expectations about the extent and timeframe of the anticipated premium reductions.
1.5The report is divided into four chapters:
this chapter provides a brief background and notes some previous inquiries;
chapter two summarises the problem: that is, the substantially higher insurance premiums in Northern Australia, and the raising of community expectations about the extent to which the pool would reduce premiums and the timeframe in which that would occur. The chapter then provides a summary of the evidence about future cyclone events. The chapter finishes by setting out what currently happens with key information about the pool and the current legislation and regulations;
chapter three outlines concerns raised about the implementation and operation of the pool; and
chapter four presents the committee’s views, recommendations, and proposed next steps.
Conduct of the inquiry
1.6Given the focus of the inquiry on the operation and implementation of the pool, and the apparent lack of participation by insurers, the committee invited key insurers and relevant bodies to submit to the inquiry ahead of their appearance at the public hearing held on 25 November 2022 in Canberra and via videoconference.
1.7The committee received 13 submissions, which are listed in Appendix 1. Witnesses who gave evidence at the public hearing are set out in Appendix 2.
1.8Details of the inquiry, including submissions and answers to questions on notice, were published on the committee’s website in accordance with usual practice.
Acknowledgements
1.9The committee thanks all those who contributed to the inquiry by making submissions, appearing at the public hearing, and responding to questions on notice.
Previous inquiries
1.10Previous inquiries that examined the issue of cyclone insurance in Northern Australia prior to the establishment of the pool include:
The Natural Disaster Insurance Review established by then Assistant Treasurer, the Hon Bill Shorten MP, which reported in 2011;
The Department of the Treasury Northern Australia Insurance Premiums Taskforce, which delivered its final report to the Government in 2015 (published March 2016);
The Royal Commission into Natural Disaster Arrangements, which looked at arrangements for a range of natural disasters, including cyclones, and reported on 30 October 2020; and
The Australian Competition and Consumer Commission (ACCC) three-year Northern Australia Insurance Inquiry, which reported on 28 December 2020.
1.11The limited market provision and high cost of insurance in Northern Australia is not a new problem. Parliamentary inquiries into related matters in Northern Australia have discussed this issue in passing.
1.12For example, in 2014, the Joint Select Committee on Northern Australia recommended that the ‘Australian Government take measures to reduce insurance premiums back to an affordable level, which could include increasing competition’ in the Northern Australia insurance market.
1.13The response from the Turnbull Government outlined measures that it had undertaken, including:
establishing the Northern Australia Insurance Premiums Taskforce (which reported in 2015); and
directing the ACCC to monitor prices, costs and profits in the Northern Australia home, contents and strata insurance market (the ACCC reported in 2020).
1.14In 2018, the Joint Standing Committee on Northern Australia recommended that ‘the Australian Government, in partnership with the states and territories… implement measures to reduce insurance premiums’ and ‘that insurance be made available for homes and businesses in the Indian Ocean Territories’.
1.15The response from the Morrison Government did not support this recommendation, arguing:
the Northern Australia Insurance Premiums Taskforce had concluded that ‘the only sustainable way of reducing premiums over the long term is through mitigation’;
‘Tackling the problem of insurance affordability in Northern Australia is a complex issue and requires action by all stakeholders, including state and territory governments, insurance companies, businesses and residents’; and
insurance provision ‘in the Indian Ocean Territories is a matter for the insurance industry to consider’.
1.16This committee includes former members of the above parliamentary committees who remain committed to highlighting issues with the cost and availability of insurance in the Northern Australia market and suggesting solutions to governments.
1.17All the above inquiries reported well before the establishment of the pool. As such, further detail about their findings is not included here, except for the ACCC inquiry (below).
ACCC inquiry
1.18The ACCC final report in 2020 recommended:
stamp duty on home, contents and strata insurance products in Western Australia, the Northern Territory and Queensland be abolished;
if existing stamp duties on insurance are kept, the governments of Western Australia, the Northern Territory and Queensland levy stamp duties for home, contents and strata insurance with reference to the sum insured value, rather than the premium level, with a portion of revenue from stamp duties on insurance products to be directed towards measures to improve affordability for low-income consumers or to fund mitigation works; and
governments consider direct subsidies rather than other measures such as government reinsurance pools, with these subsidies to be based on both premium level and income eligibility requirements.
Senate Select Committee on the Effectiveness of the Australian Government’s Northern Australia Agenda
1.19In April 2021, the Senate Select Committee on the Effectiveness of the Australian Government’s Northern Australia Agenda final report referred to evidence outlining the rising cost of insurance over the last decade in Northern Australia. Some of this evidence indicated that individuals, body corporate organisations and tourism providers were self-insuring because they were unable to access appropriate coverage. That committee heard that underinsurance is an issue in the region, with buildings being insured for significantly lower amounts than their replacement value.
1.20One witness, Ms Margaret Shaw, an insurance advocate for North Queensland (who has also submitted to this inquiry) told the committee:
I do not understand how you can begin to expand Northern Australia without insurance coverage … Without insurance, affordable insurance, you cannot encourage older people to move into apartments, leaving their homes for families to take up. You increase rents, putting strain on lower income people. You deter investors from investing. You stop developers. You stop people moving north. You prevent expansion. Without insurance, affordable insurance, you cannot open up Northern Australia and it cannot flourish and grow. This crisis needs a solution.
1.21The committee’s report also examined evidence outlining the impact of the availability and affordability of insurance on specific industries in Northern Australia, including mining, real estate, aged care and the refrigerated warehouse and transport industry. For example, one witness outlined the significant increase in insurance costs for a particular aged care facility:
The industry average cost of a resident per day in a retirement village is $1.17 for insurance. The Good Shepherd nursing home is paying $9.86 per person, per day…What I'm saying is that they are running at a loss of $4 per day, per person, in that centre…There could have been over 200 elderly without care after November last year, if a broker had been unable to find some insurance for them. Their insurance costs in 2017–18 were $44 656; in 2018–19, they were $52 174; and, in 2019–20, after the floods, they were $569752, or an increase of 992 per cent. This year, they were unable to get that insurance and had to take it on a monthly basis; when they got it, it was $666895, representing a 1393 per cent increase since the 2017–18 financial year, and the home is now running at a loss. That should be ringing alarm bells for our community, for our older citizens.
1.22Given that issues with the availability and cost of insurance in Northern Australia have been well-canvassed in previous parliamentary and government inquiries, the committee has chosen in this inquiry to focus specifically on the implementation and operation of the pool, including its effectiveness in addressing the issues with insurance outlined at length in previous inquiries.