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Broker floats co-contribution fix for flood cover scarcity

Increased flood cover excesses and co-contribution arrangements are “practical and feasible” ways to address an insurance availability crisis in northern NSW, Good Cover Principal Broker Matt Williamson says.

Consumers feel “abandoned by insurers”, he says, and the industry needs to “rethink and redo the product ... so that it’s actually purposeful for people”. 

The “contract between insurers and society is broken”, he told the federal inquiry into insurers’ handling of the 2022 floods as it visited Lismore last week. 

Insurers need to devise a practical, capped solution – and the Government needs to drive this by mandating the cover, Mr Williamson says. 

He suggests introducing an excess of $5000-$10,000 on business pack policies, compared with the typical $1000. 

The insurer and business owner would then co-contribute 50/50 to the next $50,000 or $100,000 of cover, or “whatever amount is practical and agreed”. This could be followed by 100% insured cover to an agreed sublimit. 

Co-contribution “creates a mechanism that aligns both the insurer and the business owner's interests”, says Mr Williamson, who is also Byron Bay Chamber of Commerce President. 

Businesses with significant “skin in the game” will also become more active in risk mitigation activity. 

Commonly used business pack policies are “largely unchanged in form since Federation in 1901” and “need to change”, he says. 

"Flood cover in this form of policy is binary – either you have flood cover or you don’t. In many cases businesses don’t need flood across their full asset value. What most businesses ... actually needed was money in the first instance to get back trading.”

 Co-contribution spares insurers from “running every dollar spent through their myriad of assessors and advisers”, and the business owner can “get on with the job”. 

“The benefit of this cover is that it is capped. The insurer’s exposure would be known. It would be mandated that this cover be provided.” 

Mr Williamson says there is “an asymmetry” of information between insurers and the community, and insurers should be mandated to break out their price for flood cover, so it can be used as a “barometer for risk” because it is based on huge data sets, computing power and experience.

“We are liberating the knowledge that the insurers already have for the benefit of the community. The flood premium that turns up on that invoice will be the product of competitive market forces. That is, many insurers all vying to capture premium, using their knowledge ... to put forward a price.” 

Any government subsidising would then come at “the most efficient point for taxpayers”. 

Mr Williamson says a pool arrangement for flood, like that available in north Queensland for cyclone, “would be the most inefficient form of government intervention imaginable”. 

“Rather than helping consumers, it would be relieving insurers of the burden of taking on risk. I could not think of a bigger waste of taxpayer money.”