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Six ways to tackle soaring premiums: ICA’s pre-budget submission

Cost of living is considered the number one concern for many Australians, and it will be a key focus for the Federal Government as it prepares its May budget. 

Insurance plays no small part in the debate. The Insurance Council of Australia (ICA) admits premiums have “seen a significant increase over the past 12 months”, and the impact of recent flood events has heightened concern. 

There’s talk in insurance circles that Minister for Financial Services Stephen Jones has cabinet approval for a “package” of measures to tackle insurance affordability, to be announced in May. 

But insurers will be keen for any funds to be spent in the right way, and the ICA’s pre-budget submission sets out a clear plan. 

“While there is no one solution … collectively, the measures outlined in this submission work to relieve upward pressure on premiums by reducing risk, which is the ultimate driver of insurance costs, and so support the Government’s agenda on cost of living,” ICA says. 

Here are the key recommendations from the submission. 

Investing in mitigation 

ICA welcomes the establishment of the Disaster Ready Fund from July last year, allocating $200 million a year of federal funds to be spent on disaster mitigation, matched by states and territories. But the scheme only lasts five years. 

“Given the long-term challenges posed by worsening extreme weather in Australia, investment in disaster resilience will clearly be required well beyond the 2028-29 end date for budgeted Disaster Ready Fund spending,” ICA says. 

It wants a 10-year rolling program, indexed so funding doesn’t fall in real terms. 

Land use planning 

ICA says reform of land use practices is critical to reduce extreme weather risk and “the days of developing on floodplains need to end”. 

The mistakes of the past also need to be dealt with. 

“All governments should establish permanent programs for buy-backs and home-raising to move people out of harm’s way before disasters occur, reducing recovery costs for governments and affected communities.”   

ICA wants the Federal Government to put aside $250 million a year, matched by states and territories, for home buy-backs. 

Cyber security 

Rising numbers of cyberattacks, including high-profile incidents at Medibank and Optus, have fuelled large cyber premium increases. 

ICA wants the budget to establish a cyber insurance partnership to develop new initiatives and improve business resilience. 

It also believes catastrophic attacks pose an “accumulation risk” to the market, and “there may be a role for government in providing reinsurance for catastrophic cyber risk”, which should be investigated. 

State taxes 

While ICA welcomes recent decisions by NSW and Tasmania to abolish levies on insurance to fund fire and emergency services, there is still work to do.

“All states and territories except the ACT charge stamp duty on insurance, increasing premiums by 9-11%,” ICA says. 

“This spirit of reform should be extended and built upon by all jurisdictions that continue to charge stamp duty on insurance, through the abolition of these unfair and distorting taxes.” 

ICA says federal and state and territory treasurers, through the Council on Federal Financial Relations, “should consider ways to remove stamp duty on insurance as a means to improve affordability of insurance”. 

Risk management 

Public liability insurance is a major headache for many sectors, including hospitality, live music, caravan parks, amusement parks, leisure and tourism, as premiums continue to soar. 

“Many operators in these sectors are struggling to maintain appropriate public liability insurance cover, threatening their ongoing viability.” 

ICA says its Business Advisory Council has helped the live music and caravan sectors address risks identified by insurers, and this has “resulted in greater capacity”. 

It says the budget should provide $5 million a year to establish a program to help industry groups improve risk management and standards. 

Tort reform   

Given the difficulties some businesses face obtaining public liability insurance, and the fact tort reform has not been undertaken for more than 20 years, ICA says an examination of civil liability settings should consider whether they “remain fit for purpose”. 

“The use of statutory defined benefit frameworks for personal injury claims (similar to those used in compulsory third party and workers’ compensation schemes) should be considered,” ICA says. 

“This could provide greater underwriting certainty, reduce claims costs and durations, improve health outcomes for injured people and increase the affordability and availability of public liability insurance for businesses.” 

The ICA’s full submission can be read here.