Tasmania may not experience cyclones or the kind of flooding seen in mainland eastern Australia, but insurers point out that 98% of the state is bushfire-prone and setting up a government-owned retail insurer isn’t the answer on affordability.

Premier Jeremy Rockcliff said last week that work to deliver state-owned TasInsure is well under way, and it is needed to deliver “fairer and cheaper insurance”.

“Cyclone Koji has battered northern Queensland, fire has ravaged Victoria and we are already seeing peak insurance bodies warn this will impact premiums,” he said.

“For too long, Tasmanians have been underinsured, unable to get insurance or paying the price of disasters on the mainland.”

Last year, Mr Rockcliff said he “didn’t want to see a circumstance where we have increased exposure to floods and fire on the mainland and Tasmanians wear the brunt of that”.

The Insurance Council of Australia says all levels of government are grappling with pressures that are increasing coverage costs, and TasInsure, far from helping, could expose the state to catastrophic losses exceeding hundreds of millions of dollars.

ICA has released research from Lateral Economics to underscore its case and the benefit of alternative pathways such as removing insurance taxes, mitigation spending and law reform to improve public liability affordability.

Tasmania’s insurable dwelling exposure of about $119 billion represents 278% of state GDP, which is the highest ratio among Australian states and indicates the least economic capacity to absorb catastrophic insurance losses, it says.

About 98% of Tasmania is designated bushfire-prone, the highest ratio for any state or territory. Floods have proved costly in the past and more frequent and severe hailstorms are expected with a warming climate.

“This heightened risk profile, combined with Tasmania’s limited economic capacity to absorb catastrophic losses, makes it imperative that the state pursue evidence-based policy solutions that address the underlying drivers of insurance costs rather than interventions that transfer risk to taxpayers,” ICA said.

The Insurance Council is concerned over the government’s suggestion it could expand the existing infrastructure of the Motor Accidents Insurance Board (MAIB) – which provides compulsory third party cover – to establish TasInsure.

Lateral Economics says TasInsure would generate annual operating deficits of $4 million at 10% market share, escalating to more than $13 million at 30%, which would exhaust reserves available from MAIB within 15 years.

It estimates establishment costs of $150 million and prudential capital requirements up to $510 million.  

A large bushfire in Hobart, like 1967’s Black Tuesday disaster, could produce insured losses exceeding $2 billion, leading to severe impacts for TasInsure, depending on market share.

ICA points to the Launceston flood levee as an alternative approach to reducing catastrophe costs and urges Tasmania to pursue projects through the federal government’s Disaster Ready Fund, which jointly finances mitigation.

The Launceston levee prevented $216 million in losses during the 2016 floods, against a construction cost of $58 million, while generating annual premium savings of up to $14 million, it says.

ICA also calls on Tasmania to abolish insurance stamp duty to provide an immediate benefit, and to scrap the fire services levy and find a fairer way to fund emergency services.

Lateral Economics says Tasmania already has among the lowest average premiums across all states and territories, meaning the market is reflecting its lower risk compared with places such as Queensland and the NT.

There is no evidence Tasmania lacks sufficient competition, with at least seven insurers offering cover, and the policy rationale for government entry into the provision of retail insurance is weak, it finds.

However, the political problem is that consumers are facing increasing insurance costs, mitigation projects take time and policyholder renewal notices do not show benefits from government resilience plans.

Action on insurance taxes has also started and stopped. In 2023, the Rockcliff government began consultation on removing the fire services levy, but proposed alternatives prompted heated opposition and the reforms were paused before the March 2024 state election.

The Tasmanian Farmers and Graziers Association said the alternative funding models could leave members instead facing soaring local government rates.  

ICA CEO Andrew Hall says the question is not whether action is needed; it’s about finding the most effective solutions, and they should reduce risk, not just transfer it. 

“The insurance industry is ready to work constructively with the government and community on solutions that will genuinely help Tasmanian families and businesses afford insurance over the long term,” he said.