Tasmania’s plan for a state-run insurer could leave taxpayers liable for hundreds of millions of dollars after a major catastrophe, research commissioned by the Insurance Council of Australia shows.

The Lateral Economics report says TasInsure could generate operating deficits of $4-$13 million depending on market share, and it warns drawing on motor compulsory third party scheme reserves would be financially irresponsible.

“TasInsure would likely impose recurrent losses and expose the state to large fiscal risks, and it should not be established,” the report concludes.

Lateral Economics estimates a Hobart bushfire like Black Tuesday in 1967 could cause losses exceeding $2 billion.

“If TasInsure enjoyed 30% market share, it may need to cover insured losses of $600 million,” the report says.

“Even with reinsurance, extreme events would leave the state and ultimately Tasmanian taxpayers liable for hundreds of millions of dollars.”

ICA says 98% of Tasmania is bushfire-prone, while the insurable dwelling exposure of $119 billion represents 278% of state domestic product – the highest ratio of any state.

The risk profile underlines the need for evidence-based solutions that put downward pressure on costs without transferring risk from a well-functioning private market onto taxpayers, it says.

“The question isn’t whether action is needed, it’s about finding the most effective solutions that will genuinely help Tasmanians over the long term,” ICA CEO Andrew Hall said.

ICA proposes action on the $260 million in annual state insurance taxes that add 21% to home premiums and up to 48% for businesses, and calls for resilience investment and law reform to improve public liability affordability for small businesses, non-profits and community groups.

Tasmania should partner with the federal government through the $1 billion Disaster Ready Fund for mitigation, focusing on high-risk communities, it says.

“The Launceston flood levee is proof that resilience works – it prevented $216 million in losses during the 2016 floods and generates annual premium savings of up to $14 million,” Mr Hall said.

ICA notes escalating extreme weather and persistent high inflation, particularly in construction, are leading to more properties needing rebuilding, and at a higher cost.  

In 2023, the Tasmanian government consulted on removing the fire services levy but paused activity before the March 2024 election. Premier Jeremy Rockliff proposed TasInsure last year as he faced another election after a parliamentary no-confidence vote.

The Lateral Economics report is here.