Public pressure

Authorities in two regions are aiming to seize the initiative on insurance affordability as frustration grows

By Wendy Pugh

Southwest Queensland and Tasmania are taking premium affordability matters into their own hands as they look to bypass insurers and pursue regional solutions to a national concern.

Their proposals – still at an early stage – have prompted insurer warnings about financial risks from narrowly focused plans, as the industry promotes mitigation spending and tax reforms as the keys to cutting costs, while recognising other action is also needed.

The South West Queensland Regional Organisation of Councils has run out of patience after years of talks with insurers, flood studies and resilience projects failed to stop premiums surging. It has asked Marsh’s JLT for advice on a mutual.

“We just feel there’s been absolutely zero progress made, and we’re not alone,” organisation chair Samantha O’Toole tells Insurance News. “The solution should be affordable, reasonable insurance for our communities, and that hasn’t been achieved to date.”

In Tasmania, government plans to establish a state-owned insurer are moving ahead. A discussion paper and preliminary draft legislation were released late last year and industry consultant John Trowbridge has been appointed as it considers next steps.

Premier Jeremy Rockliff – who announced TasInsure as an election campaign promise – says local premiums are inflated by mainland catastrophes, there is scope for another competitor and the plan resonates because “people are hurting”.

Mr Rockliff says residents and businesses are underinsuring, not insuring or cannot get cover, and that he raised the issues “a couple of times at a national forum” and at a tourism ministers meeting.

“It was agreed that we will look at this nationally and, [in] the absence of that happening, we’ve decided to insert ourselves with our own policy commitment,” he told a Tasmanian parliamentary committee hearing.

The two regions – a study in contrasts when it comes to climate and landscape – are acting in parallel amid evidence insurance accessibility and affordability is a worsening problem and catastrophe impacts will increase.

The potential for a public-private partnership to help those most at risk has long been discussed.

Actuaries Institute research released in 2024 showed rising premiums had increased the number of households experiencing insurance affordability stress to 1.6 million.

The proportion of affordability stressed households rose to 15% in the year to March 2024 from 12% in 2023 and 10% in 2022.

University of Queensland professor Paula Jarzabkowski, an international expert on the insurance protection gap, says the TasInsure and southwest Queensland plans have emerged as more information points to a growing problem.

“We do know from a load of different reports that for those at the most risk, insurance is becoming less available or less affordable,” she tells Insurance News.

“It is interesting that two layers of government at the same time, in different places for different risks, are trying to show responsiveness, although the potential for that to be successful will certainly require quite some understanding of how they’re going to manage the risk down and manage the diversification of risk.”

Professor Jarzabkowski notes it can take time for interventions such as the cyclone pool to emerge: the UK’s Flood Re scheme came about after 15 years of discussion.

The Insurance Council of Australia and federal Assistant Treasurer and Financial Services Minister Daniel Mulino looked at affordability issues and responses last year during a trip to Europe, where schemes operating with mixed success provide insights rather than off-the-shelf options.

“It is true to say, I think, that there is a growing problem of access to insurance at the riskier end of the market, and it’s very much worth us looking at these different approaches being implemented overseas,” Dr Mulino told ABC radio.

The parliamentary inquiry into the 2022 floods, chaired by Dr Mulino, recommended the federal government consider measures to help policyholders with high-risk properties, “including the appropriateness of a government-supported reinsurance arrangement”.

A separate Senate inquiry proposed expanding the cyclone pool to all natural disasters.

Dr Mulino says a “full menu of options” should be carefully considered, but he is yet to suggest a specific way forward. He tells Insurance News the government is committed to making insurance more affordable and accessible for households and businesses.

“We welcome all ideas, but our focus is trying to fix the underlying issues of insurance affordability,” he says.

The Insurance Council of Australia says TasInsure is the wrong answer. It released a Lateral Economics report warning the move could expose state taxpayers to significant financial losses, and it also questions the merits of the southwest Queensland plan.

“A co-ordinated national response is going to be the only solution eventually because we know that localised schemes are risky because they’re undiversified,” chief executive Andrew Hall tells Insurance News.

The industry does not have a public-private model it prefers at this point, he says, but it is vital in any plan that underlying risks are addressed and the industry is involved in conversations.

“The opening principle is that we accept that to address the problem in the short term, it’s going to require some sort of scheme, and for that scheme to be successful it will require a way of being able to pool risk.

“And if we’re doing that, we also need to be looking to reduce the risk, so the scheme itself is viable over the long term and doesn’t become an expensive proposition for governments or industry and consumers to wear.”

Mr Hall says the timing and pace of national responses to address risks and affordability remain in the hands of the federal government.

“I’m optimistic that the government understands that work does need to be progressed on this, and I think that the pieces have been coming together slowly.

“We need to see whether in this budget cycle, for example, the government allocates funding to progress this, or what this looks like”.

On mitigation, the federal government is providing $1 billion over five years through the Disaster Ready Fund, under which projects are jointly backed by states and territories. Round four is due to open soon.

The Hazards Insurance Partnership, connecting government and industry, has met regularly since 2023 with the aim of improving resilience and addressing affordability and availability, while data has been shared on perils and high-risk areas.

ICA wants the Disaster Ready Fund to become a 10-year rolling program, and has proposed a $30 billion flood defence fund supported by the federal, NSW, Victorian and Queensland governments.

Its policy platform also centres the removal of state taxes and charges on insurance, and it is pressing for law reform to address public liability costs. Mr Hall says a co-ordinated, targeted approach to risk reduction requires short, medium and long-term perspectives.

“There isn’t one silver bullet, which we’ve known for a long time, to fix this problem,” he says. “It’s a very expensive issue to address, which sometimes politically is not a popular message to be delivered, but it’s the reality, and the longer Australia leaves it the more expensive it’s going to become to fix the problem in the longer term.”

The Geneva Association, an international insurance think tank, says in an analysis of 14 public-private partnerships around the world that more frequent and costly disasters are exposing the limits of traditional insurance and post-crisis government relief.

But it warns poorly designed public-private schemes can end up under severe strain due to rising losses, and may crowd out commercial players. It has outlined guard rails for successful arrangements.

“Public-private insurance programs can’t just be passive shock absorbers that pay out after disaster strikes,” association managing director Jad Ariss says.

“To remain viable in a world of escalating risks, they must become resilience engines – reinforcing prevention, strengthening incentives to reduce exposure and helping societies recover faster with less pressure on public budgets.”

The TasInsure plan throws back to the era before asset privatisations, when Australian states owned insurers, banks and electricity and gas utilities.

Tasmanian Treasurer Eric Abetz told state parliament the government is committed to the private sector, but when there is “market failure” or the state can better deliver, “then of course we will embrace that”.

Mr Abetz says he met a small business owner from the state’s northwest whose premium went from $8000 to $20,000 in four years without them making a single claim.

“There are small businesses genuinely struggling in relation to their insurance premiums – tourism industries, households,” he said.

“That is why the Premier determined on a policy to seek to deal with that issue for and on behalf of the people of Tasmania.”

The southwest Queensland councils anticipate JLT will consider issues such as the geographic area and spread of risks required for a viable mutual, as they prepare for a further meeting with insurers and other government stakeholders.

Cr O’Toole, Mayor of the St George-based Balonne Shire, says homes that have not been inundated in 13 years are seeing surging premiums. Residents paying $1500-$2000 a few years ago are now looking at $15,000-$23,000, and more people and businesses may drop insurance.

Investigating ratepayer home and business insurance options is not typically in the wheelhouse of local governments, she says, but communities should not be exposed to financial risks arising from a lack of cover.

Cr O’Toole has also called on the federal government to act on parliamentary inquiry recommendations and would welcome consideration of a flood pool, as councils from other regions also watch developments.

“The federal government needs to have an active role in this conversation, which we feel has been really lacking to date,” she says.

“They should really be driving the conversation to achieve affordable insurance for all Australians.”