Unaffordable home, contents and strata insurance is a major challenge to the liveability and prosperity of communities, towns and cities across northern Australia, but a range of actions could help address this, according to a major report published by the ACCC.
The final report of the ACCC’s three year Northern Australia Insurance Inquiry shows that home, contents and strata insurance premiums are, on average, considerably higher in northern Australia than the rest of the country, and over the past decade have increased at a faster rate.
Rising insurance costs are leading to higher rates of non-insurance in northern Australia, leaving more households and communities financially vulnerable to the impact of severe weather events, and potentially hurting the economic development of the region.
Insurers are increasingly assessing and pricing risk, based on a home or building’s individual characteristics and address rather than at a postcode or regional level, especially for cyclone or flood risk. This has resulted in very significant premium increases for some households.
“This inquiry has examined insurance in northern Australia in unprecedented breadth and detail, using an extensive volume of documents and data from insurers, and taking in significant information and feedback we have received from industry, local residents, consumer groups and communities across northern Australia,” ACCC Deputy Chair Delia Rickard said.
“We know that there are real reasons for more expensive insurance premiums in northern Australia. The risk of extreme weather is higher and it can be costly for insurers to service these regions. However, different insurers can quote vastly different premiums for the same property. While many consumers could save by switching, it is harder than it should be for consumers to shop around.”
“Our analysis has shown that, with the right actions, northern Australian insurance markets could work much better for consumers. We believe our wide-ranging recommendations would address many of the problems we have identified,” Ms Rickard said.
“Many of our recommendations, if adopted more broadly, could also benefit consumers and insurance markets across Australia.”
The ACCC has made 38 recommendations in this final report, including 11 new recommendations, that seek to improve outcomes in the short, medium and long term.
The inquiry considered a range of options that have been suggested to governments to improve affordability. The ACCC has recommended that, if governments want to provide immediate relief to consumers facing acute affordability pressures, subsidies be used in preference to other measures such as government reinsurance pools.
“Direct subsidies can be used in a highly targeted way to relieve some of the acute financial pressures faced by households in specific areas, at a lower cost and more effectively than other measures,” Ms Rickard said.
“We do not believe that government insurers and reinsurance pools can lower premiums without the government subsidising the insurer in some way. These measures also can’t be targeted to those consumers most in need, and so are more costly. Further, they involve transferring significant risks from insurers and reinsurers to governments, who are not well placed to manage them.”
Other recommendation that would provide immediate assistance include abolishing stamp duty on home, contents and strata insurance or, if it is maintained, that it be based on the sum insured of a property rather than the premium amount. The report notes that the rise in premiums on insurance in northern Australia has resulted in significant windfall gains for state and territory governments.
“We continue to advocate that a portion of any stamp duty revenue should be devoted to improving affordability of insurance for low income consumers or to funding mitigation works,” Ms Rickard said.
“However, the best outcome for consumers would be for stamp duty to no longer be applied to home, contents and strata insurance, which are often considered essential products that some households struggle to obtain.”
We also recommended that insurers provide more short-term help for customers struggling to pay their premiums when due, such as by deferring payments, reducing or waiving surcharges for monthly payments, or offering payment plans.
“The industry has no standard approach to assisting customers struggling to pay their premiums,” Ms Rickard said.
“It is crucial that we help households hold onto their insurance, because becoming uninsured can result in much greater financial hardship in the future if homes or possessions are impacted by a severe event.”
Better disclosure of surcharges imposed on monthly instalments has also been recommended, so that consumers can compare the difference in cost in dollar terms between paying annually or monthly. Some insurers apply a surcharge of up to 20 per cent, which can add hundreds of dollars a year to the cost of insurance.
The inquiry has also made a series of recommendations relating to risk mitigation, including new recommendations designed to make insurance more affordable in the future by reducing the risk of property loss or damage.
These include expanding the remit of the Australian Building Codes Board to explicitly include property protection as an objective when developing the National Construction Code, and that Standards Australia and the insurance industry develop voluntary standards for more resilient buildings, for both new homes and for retrofitting of existing homes.
“Importantly, we are calling on the insurance industry to commit to taking into account resilience measures when setting premiums,” Ms Rickard said.
The inquiry also looked at how risk data could be better shared and at improvements to land use planning.
The new recommendations add to the previous recommendations made by the inquiry over the past three years. These have included measures to make pricing more transparent, a ban on conflicted remuneration for insurance brokers and strata managers and that a national home insurance comparison website be considered.
During the past three years the ACCC considered more than 420 submissions and held public forums in Townsville, Cairns, Rockhampton, Mackay, Broome, Karratha, Darwin and Alice Springs.
“We have heard first-hand how many residents of northern Australia are struggling to find suitable and affordable insurance in this market, and the considerable impact this is having on them and their communities,” Ms Rickard said.
“We believe the work of this inquiry and the implementation of our recommendations will make a difference for people living in northern Western Australia, northern Queensland and the Northern Territory, and contribute to the long-term prosperity and liveability of this important part of Australia.”
The ACCC commenced an inquiry into the supply of home, contents and strata insurance in northern Australia in July 2017, following a direction from the Australian Government.
This final report concludes the inquiry.
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