ICA developing policy papers on protection gap and affordability
The Insurance Council of Australia (ICA) has told a parliamentary committee inquiry into last year’s floods response that it is preparing a series of policy papers that will examine the nation’s “protection gap” and cover affordability.
The House of Representatives Standing Committee on Economics is inquiring into insurers’ response to last year’s major floods, with its mandate extending to affordability issues. It will report by September 30 next year.
“The ICA is currently preparing a number of policy papers to examine the protection gap in Australia and the affordability of insurance in detail,” it says in a submission published on the inquiry website today. “These papers will be released in coming months and will be provided to the committee to assist with the inquiry.”
The submission says insurers will need to carefully consider how the costs of potential future investments in operational response processes and technology improvements to improve claims and complaints handling will impact on premiums.
Premium increases are being driven by extreme weather events, development and growing asset values in high-risk areas, and inflation, especially in the construction sector. In response to those factors, global reinsurance premiums are rising, the ICA says.
An ICA-commissioned Deloitte report into the February and March floods response last year, made recommendations across seven areas that have been accepted in principle, and which are outlined in the submission.
Deloitte points out that Australian insurers differ from counterparts in other advanced economies as they are more likely to take control of rebuilding or repairs, reducing the burden on policyholders compared to a cash settlement since they aren’t required to project manage the recovery.
But shortages of trades people and building materials were acute last year given the scale of the flooding compounded by the effects of inflation and two years of border closures and lockdowns.
Improvements in data and information about flood risk in the last two decades have resulted in flood insurance being offered as part of the vast majority of home building and contents policies, it says, although some insurers allow policyholders to opt out of flood which means hydrologists may be required to assess the source of inundation.
“Hydrologists are generally engaged for government and private planning purposes and do not have a significant surge capacity to provide their expertise following flood events,” the submission says. “As a result, the capacity of hydrologists in Australia was overstretched, resulting in delays to assessments required to progress the claims of some policyholders.”
ICA highlights regulatory changes and presses for risk reduction action in areas such as resilience spending, land use planning and building code reforms. It also stresses the impact on premiums from insurance taxes.
ICA says that across the four events being examined by the inquiry, there have been 303,407 claims lodged totalling almost $7.4 billion. At the time of the floods that affected south east Queensland and NSW in February, there were already 85,953 open claims, driven by six declared events in 2021.
The submission is available here.