Suncorp has called on the Federal Government to work with the insurance industry and communities to develop a cyclone resilience program for homes in northern Australia.

In a strongly worded response to last month’s Northern Australia Insurance Premiums Taskforce interim report, the Brisbane-based insurer also asks the Government to commit to “ongoing investment in mitigation and resilience to fund the implementation of these measures”.

“It is the role of government to protect communities, not to intervene in functioning markets,” Suncorp says in its submission. “Government cannot commit to economic development in northern Australia while allowing cyclone risk to grow unchecked.”

The insurer says the threat is a fact of life in northern Australia, with 17 severe cyclones making landfall there over the past 10 years.

“Insurance losses from cyclones are modelled to average $632 million per year. In any given year there is a one-in-10 risk cyclones could cost $1.4 billion and a one-in-100 risk they could cost as much as $7 billion.

“Cyclones also cause significant social and economic losses beyond the insurance market.”

The submission contains extensive research carried out by the company. Noting that insurance premiums reflect the high risk of financial loss, it says the real issue to be addressed “is why we allow cyclone losses, both economic and social, to continue growing”.

“Homes in northern Australia are simply not built to be cyclone-resilient,” Suncorp says.

“Building codes focus on saving lives rather than minimising damage, and older properties may not even meet this minimum standard.”

It says proposed market interventions such as introducing a reinsurance pool or mutual insurer “do nothing to address risk or reduce the devastating impact of cyclones on northern communities”.

Stating the solution lies in retrofitting buildings, strengthening standards for new buildings and introducing better planning controls for development in high-risk areas, Suncorp says improving cyclone resilience “is the only way to reduce risk and protect communities”.

“Retrofits save homeowners and the economy up to $13 for every dollar invested, and significantly reduce the amount of damage caused when a cyclone hits.”

Suncorp also challenges the contention that the northern Australian insurance market has failed, saying the Government’s own reviews have concluded premiums are reflective of cyclone risk.

“Right now there are as many insurers operating in Cairns as there are in Sydney.”

It says 96% of home building premiums in the region are below $3000, and “renewal rates are consistent with other locations. Excesses are not being significantly increased.”

Warning a reinsurance pool or mutual insurer “will be expensive and will leave communities vulnerable to increasing risk”, Suncorp says international experience shows insurance pools “create a moral hazard encouraging further risky development, and expose governments and taxpayers to significant liabilities”.