Home / Local / Industry lukewarm to 'Medicare-style' insurance pricing idea
25 May 2020
A “Medicare-style” system to price risk in bushfire-prone areas is not the answer to the premium affordability problem facing property owners, according to the Insurance Council of Australia (ICA).
As reported last week, a University of NSW report says the publicly funded universal health insurance scheme’s focus on equality offers the best approach to blunting the impact of rising premiums caused by climate change-induced bushfires.
But ICA is not convinced, likening the idea as similar to an insurance pool that could potentially “saddle policyholders and communities with unfair costs and additional bureaucracy.”
“The Insurance Council believes other solutions would be fairer and more effective in ensuring the long-term sustainability of communities in high-risk areas and reducing premium pressures,” spokesman Campbell Fuller told insuranceNEWS.com.au.
“The ultimate goal should be to protect at-risk communities through physical mitigation infrastructure and improved policy settings relating to building codes, risk-appropriate land-use planning, and the removal of state taxes and levies that have a significant impact on insurance affordability.”
According to the report, Social Justice and the Future of Fire Insurance in Australia, the current market-based model of setting home premiums for at-risk properties is increasingly untenable.
Bushfires will become more frequent and severe because of climate change, raising questions over whether the Pure Actuarial Fairness pricing model should still be used to assess future risk.
Actuaries are also lukewarm to the idea of using a “Medicare-style” approach.
“Insurance price signals can act as an important incentive to encourage reduction of risk,” Actuaries Institute CEO Elayne Grace told insuranceNEWS.com.au. “Actuaries are very conscious of community expectations regarding fairness and routinely consider both fairness based on risk and fairness based on the ability to obtain insurance.”
Professor Jeremy Moss, the report’s lead author, says the report was prepared to start a public dialogue on how the country should protect citizens’ welfare as more climate change-fuelled severe weather events are expected.
“I’m asking the question whether or not the current model of insuring at-risk homes is fit for purpose,” he told insuranceNEWS.com.au.