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A retro solution to the ever-present threat of cyclones

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There’s no doubt that one cyclone-prone corner of Australia generates more than a few headwinds for the insurance industry.

In pushing for a home retrofit program in north Queensland, Suncorp is flexing its muscles in a bid to dissuade the Federal Government from creating a reinsurance pool or a mutual insurer for cyclone cover in the region.

It says the $2 million cost of a taskforce to examine the options would be better spent on a program to help homeowners prepare their properties for cyclones, which would cut home insurance costs and insurers’ claims costs.

Last week Suncorp Personal Insurance CEO Mark Milliner travelled to James Cook University’s Cyclone Testing Station in Townsville to release a report showing homeowner retrofits are better than “hiding the problem behind an insurance pool”.

The paper shows one-quarter of Suncorp policyholders claimed for Cyclone Yasi in 2011 and 86% of these claims for were for minor, preventable damage.

The report – Build to Last: A Protecting the North Initiative – draws on analysis by James Cook University and consultancy Urbis to establish the costs and benefits of a retrofit program.

Based on claims from cyclones Larry in 2006 and Yasi, the report says about 100,000 older homes may not meet current wind-load codes.

In Innisfail, claims following Yasi cost half those for Cyclone Larry five years earlier, because much of the town had been rebuilt.

“Clearly this is good evidence… that if we do rebuild towns to the right sort of cyclone standards, the next time a cyclone comes through people will be safer and there is significantly less damage,” Mr Milliner told insuranceNEWS.com.au.

Roof upgrades can halve cyclone damage bills, and can pay for themselves after just one storm, the report says.

Low-cost roof strapping is about $3000. Upgrades can include full replacements, extra strapping or over-battens, costing up to $30,000.

Doors and windows are other common weak points.

For every dollar spent on low-cost retrofits, the community could save at least $3 on future repairs, while installing strapping on replaced roofs could save $12 for every dollar spent, the report says.

Queensland has already committed $40 million to mitigation for the next year, but Suncorp believes local governments should do more to enforce building codes and standards.

“We certainly want to make sure north Queensland is built to last and not blown over in the next cyclone,” Mr Milliner said.

North Queensland strata premiums are five times higher than in Sydney and Melbourne, while home cover is 2.5 times more expensive.

Home and contents premiums in north Queensland have risen 80% since 2005, compared with 25% nationally.

The new report is part of Suncorp’s “Protecting the North” program, which offers lower premiums in return for homeowner mitigation, a direct strata insurance product for smaller buildings – which Mr Milliner says is “getting good traction” – and a product for low-income households, with contents cover from $4 a week.

Suncorp Bank is exploring finance options for customers who want to improve their properties’ resilience.

It’s all part of Suncorp’s action over Federal Government intervention in the north’s insurance market.

In April the Federal Government announced the Northern Australia Insurance Premiums Taskforce, which will explore options to reduce home, contents and strata premiums in Queensland, the NT and WA. It will report by November.

“We just think a reinsurance pool is bad policy in a market we’d argue is working extremely well,” Mr Milliner says.

“There is no market failure in north Queensland. There are multiple insurers that will write policies up there.”

Suncorp’s retrofit proposal comes after CGU – through subsidiary Strata Unit Underwriters – cut premiums to more than 7000 unit-owners under its north Queensland resilience project. It tested 390 homes for disaster resilience and offered advice on problems that needed fixing.

“I think as an industry it’s in all the insurers’ interests to look at ways we can encourage policyholders to reduce risk and reduce premiums,” Mr Milliner says.

“Certainly CGU has done some work up there, which we think has been good.”

Whatever happens, one thing is for sure – the cyclone threat is not going anywhere.

“It’s not a cyclone event every 10-15 years up there,” Mr Milliner says. “There are cyclones every year in north Queensland, and that will continue to be the case.”

While the work done by CGU and Suncorp in reducing damage from future cyclones is laudable, the degree of cut-through with the Federal Government is uncertain.

Suncorp’s retrofit proposal is backed by solid research. But the issue has evolved into a political football over the past three years.

The Government’s ability to change course and work with the insurers for a radically different (and more logical) solution is the big question.

Having previously canvassed a range of policy solutions ranging from downright foolish to logical but unproven, the present focus on a reinsurance pool or mutual insurer may have already gained too much momentum.