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Northern Australia: ACCC plays a tune it can dance to

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Just as some federal ministers decline to engage with anyone using the term “climate change”, it is becoming apparent that with others in government the turn-off word is “mitigation”.

There’s some linkage, because climate change is being blamed for increasingly extreme weather trends in northern Australia, and mitigation – investing in ways to minimise the damage from such events before they occur – still seems to be the only viable solution.

For its own reasons the Government continues to ignore the enormous amount of evidence, including from its own Productivity Commission, about the need for investment in mitigation strategies. Instead it focuses on peripheral issues like insurance which, without mitigation, will always be expensive.

So perhaps it’s disappointing to the Australian Consumer and Competition Commission (ACCC) that insurers will see little that’s progressive in its latest report into insurance issues in northern Australia. After all, the commission was charged with finding solutions to the issue of insurance affordability in northern Australia, and that’s what it has done.

The report, issued last week, mentions mitigation in passing as being a positive influence on insurance affordability, but then it focuses on strategies that in many cases force the insurance industry to oppose them.

While consumer groups have every reason to be enthusiastic about the ACCC’s views on how insurance should be conducted in higher-risk regions, insurers will regret the blind ease with which the report foists on them the financial and logistical burdens of fixing the problem as well as the blame for it existing.

Having startled the industry with its last report in December which called for, among other things, a ban on broker commissions – now solely referred to as “conflicted remuneration” – in the region, the ACCC’s latest report contains 28 recommendations that boldly go where so many have gone before.

For example, the report’s enthusiasm for a government-backed reinsurance pool, a mutual insurer owned by policyholders and direct subsidies from the Government are merely flawed ideas that have already been examined for northern Australia in depth, by experts whose vision went beyond a fixation on consumers to also examine the economic and insurance realities.

As Insurance Council of Australia CEO Rob Whelan pointed out last week, the ACCC’s suggested remedies have been tried in other countries “and have failed to address the fundamental issue of reducing the risks through better planning, building, and mitigation”.

Mr Whelan says it would be “unfair and unsustainable” for insurance in northern Australia to be subsidised by the rest of the nation. Most Australians would agree.

A key idea from the report last December that failed to impress ICA – and which the ACCC has now reissued as a solid recommendation – is the creation of a national home insurance comparison website.

Apparently this would be much better than the one set up all too recently by their counterparts at the Australian Securities and Investments Commission (ASIC) because it would compel insurers to reveal a great deal more information.

Australia’s largest insurers (and many others) chose long ago not to work with comparison websites. The UK experience of the 1990s taught them that such sites encourage people to buy insurance based purely on price rather than suitability. In personal lines, in particular, comparison sites are considered the starting point for a race to the bottom. That should not be the ACCC’s approach.

The report criticises the impact that stamp duty has on premiums in the north – who hasn’t? – but skirts around what Mr Whelan calls the “key drivers of pricing and availability of insurance in northern Australia”.

These drivers are simple enough but seem to have evaded the report compilers’ consumer-focused gaze. They are the high risk and impact of natural disasters, high costs of materials and trades, inadequate building controls, and poor-quality building stock – issues that the ACCC should investigate.

This report deserves greater attention across the insurance industry than it has received so far, because some recommendations propose changes that would have far-reaching impacts. You might also be surprised by the proposed legislative and regulatory amendments that would be required to make some of the ACCC’s more abstruse dreams come true. View the report here.

The Government hasn’t yet responded to the first 15 recommendations posted last December, and the next report is due on November 30, with a final report a year later.