Home / Daily / Moving on mitigation: insurers could sign premium reduction guarantees
7 November 2019
The Federal and state governments could be given the opportunity to sign a memorandum of understanding (MoU) with insurers that guarantees premium reductions if certain mitigation measures are carried out.
The Federal Government has given an extra $50 million to disaster mitigation, upping its annual commitment to about $75 million.
Now the Insurance Council of Australia (ICA) and its members have drawn up a package of projects outlining where the money could be spent, ahead of a meeting with federal ministers next week.
The discussion document details potential public mitigation schemes in Townsville, Gold Coast, Cairns, Brisbane, Rockhampton, Mackay, Bundaberg, Lismore, Western Sydney, Ballina, Narrabri, Newcastle, Coffs Harbour and Singleton.
When added to removal of state taxes, improved data and private mitigation works, premium reductions of more than 50% are possible in some areas.
“The message on mitigation is getting through,” ICA Head of Risk and Operations Karl Sullivan told insuranceNEWS.com.au.
“We wanted to identify precisely where the high-risk locations are and what sort of premium compression you can get. We have focused on projects where we can measure and predict what the premium reduction could be.
“The MoU is a relatively new concept. Insurers that participate would agree on a minimum premium reduction, and some would go beyond the minimum.”
Mr Sullivan says that doing nothing is “not an option”.
“There are 46,000 land parcels in Townsville exposed to high probability flooding, and high premiums.
“If we don’t improve houses, improve data and carry out mitigation then those premiums will rise higher and higher. We need to get out there and roll up our sleeves and build some flood levees and dams.”
The discussion document details cross-subsidisation measures such as disaster pools that could be used if all else fails.
“Should government consider that the mitigation funding already approved will not deliver significant risk reduction for high-risk communities, deeper consideration of mechanisms to shift the high costs of premiums to others may need to be investigated,” it says.
However, Mr Sullivan says the industry position on pools has not changed.
“The industry position is that pools are not the correct response,” he said.
“They would put enormous financial pressure on the Government and, crucially, would not solve the problem.
“Do the hard stuff first. If none of it works, as a very last resort, consider how you are going to get people in Melbourne to subsidise residents in North Queensland.”
Click here to see the document.