Sixteen steps

ICA has a blueprint for reducing risk and making cover more affordable – but will the next government follow it?

With polls running close ahead of the May 3 election, we don’t, at time of writing, know what shape the next federal government will take.

But however the votes fall, there are some things we can be almost certain of: those in power will have to reckon with an intractable cost-of-living crisis; and at some stage over the next three years, they will find themselves responding to floods, fires and/or storms.

These issues are not unrelated. Insurance premiums have become one of the key pressure points in household budgets, prompting fears that under- and non-insurance will grow just as climate change amps up the threat from natural catastrophes.

In the run-up to the election, the Insurance Council of Australia has unveiled 16 policy recommendations – big and small, long- and short-term – for the next government to enhance insurance affordability and availability, mostly by reducing risk.

It serves as both a blueprint for change and a challenge to the new regime. As chief executive Andrew Hall writes in ICA’s policy wish list: “Insurers stand ready to play their part in this important reform, but significant new government investment is the only way to reduce extreme weather risk and must underpin our future collaborative endeavours.”

Big problem, big solution

The first policy recommendation is a real headline-grabber: establish a $30 billion flood defence fund to “make Australia a world-leader in protecting vulnerable homes and communities”.

The cash, spread over 10 years, would come from the federal, New South Wales, Victorian and Queensland governments (comprising the nation’s priority catchments) and be used to build new flood defence infrastructure ($15 billion), strengthen properties ($5 billion), buy back the highest-risk properties ($10 billion) and “future-proof” existing flood defence infrastructure ($150 million).

“While $30.15 billion over 10 years is a significant uplift in government resilience investment, this should be considered against the 2024-25 federal budget, which commits general government infrastructure funding of $60.5 billion over the four years to 2027-28,” ICA says.

The council also calls for the installation of a dedicated flood defence minister, following the examples of Britain and the Netherlands.

The minister would “work closely with state counterparts to help co-ordinate, streamline and fast-track project funding and delivery.

“This could sit as part of the minister for emergency management’s responsibilities, as cybersecurity sits as a separate portfolio under the minister for home affairs’ responsibilities, ensuring this important work gets the focus and funding it requires.”

Extend DRF investments

ICA says the Disaster Ready Fund – introduced in 2022 in response to the council’s previous election wish list – has brought a “significant uplift in resilience and mitigation spending”.

The fund provides up to $200 million a year over five years, matched by states and territories, to be invested in mitigation projects.

Now, ICA wants it extended to be a 10-year rolling program, and its funding indexed to protect against inflationary impacts. It also calls for a focus on “hard infrastructure projects” such as dams and levees, detention basins and house raising.

“A 10-year, indexed program would cost the budget approximately $2.5 billion, $1 billion less than the cost of disaster recovery payments and allowances in 2022 alone,” it notes.

Improve data

The council says development of a publicly available national hazard database combining all national, state and territory data sets is crucial, and more government funding is “critical to accelerating” work by the Australian Climate Service, the National Emergency Management Agency and insurers in developing such a tool.

Among its other ideas for improved risk data and mapping, ICA also wants more investment to support local government hazard maps, which can be made publicly available in the National Flood Information Database, and development of a Flood Mitigation and Coastal Defence Register detailing assets, maintenance programs and future work.

Co-ordinate the clean-up

ICA notes that in recent years, states have used differing approaches to disaster recovery that have not been integrated across public infrastructure, insured private property and uninsured property.

“Despite advocacy on this issue by insurers … clean-up operations have in most cases not been planned, meaning program design has occurred on the run following a disaster.”

It wants the federal government to collaborate with the insurance industry to establish Commonwealth recovery arrangements and to prioritise recovery work including debris removal at the National Emergency Management Ministers’ Meeting.

It also calls for findings from the 2023-24 Independent Review of Commonwealth Disaster Funding (the Colvin review) adopted to improve co-ordination in funding arrangements, and for an industry representative to be appointed to the Disaster Management Advisory Council.

Resilience on the home front

The wish list – published about a month before Cyclone Alfred gave Brisbane, Gold Coast and other east coast areas an almighty scare (and caused no small amount of damage) – calls for the federal government to give $110 million over five years to the Queensland, Northern Territory and West Australian governments to expand and extend some of the short-term grant programs that have helped homeowners make properties more resilient to such storms.

It says that amounts to half the sum required, and that overall the program could yield nearly $2 billion in benefits, a ninefold return on investment.

It also wants $3 million over three years to fund research into the climate change updates needed on Australian Standards concerning wind and wind-
driven rain conditions.

Axe the taxes

Nothing new about this one – the industry has been campaigning for the removal of insurance taxes for many years.

Its messaging has mostly fallen on deaf ears – particularly around stamp duty – but you can’t blame it for continuing to try, because the equation as ICA sees it is a simple one: “The most effective and immediate way to reduce insurance premiums is the abolition of duties, levies and charges on insurance products … While these are all state taxes, the federal government is ultimately responsible for the health of the tax and transfer system and is able to influence the states through incentives and penalties.”

Reshape regulations

ICA says rapid reforms over the past decade have left the legislative framework for financial services “overly complex”, straining resources and creating costs that are ultimately borne by consumers.

It calls for a “co-ordinated and simplified regulatory framework”, with steps including a review of impacts from the Hayne royal commission reforms and a response to an Australian Law Reform Commission report of last year that made nearly 60 recommendations to streamline financial services regulation.

It says the industry “welcomes progress on the Regulatory Initiatives Grid announced in December 2024 and looks forward to this initiative helping regulators to co-ordinate change to ensure regulation is carried out in a more co-ordinated way”.

Build in the right places

“Reform of land use practices … is critical to reduce extreme weather risk,” ICA says. “Land use planning arrangements do not adequately account for current or future bushfire, flood or cyclone risk.”

It wants national cabinet to finalise a nationwide standard that considers disaster and climate risk in land use planning, and for all governments to “adopt a risk-based approach that stops development in high-risk areas, requires stronger building codes and standards and/or adequate resilience infrastructure in areas of higher risk, and prioritises low-risk areas for development”.

ICA adds that planning should be should be state-led and catchment-based, incorporating flood risk and based on water catchment boundaries rather than local government areas.

Raise construction standards

“Minimum building standards in Australia are currently designed to preserve life in a catastrophic event but they are not designed with the goal of also preserving the property itself,” ICA says.

The council wants changes to the next National Construction Code – due in 2028 – to require that new homes are made more resilient to the impacts of bushfires, cyclones and floods. It says this could save $4 billion a year of insured and uninsured losses, and other impacts such as mental health costs.

ICA also wants $2 million invested over three years in research “to support amendments to the NCC and referenced technical standards to ensure buildings can better withstand current and future extreme weather events”.

Empower strata owners

The Insurance Council notes strata living is on the rise as the population swells amid a housing shortfall, meaning “well-managed strata schemes, and the role of strata insurance, are more important than ever”.

It wants education requirements for strata managers raised and educational opportunities for owners’ corporation members, to empower them “to make effective decisions to ensure strata properties remain safe to inhabit, insurable and financially sustainable”.

Following last year’s high-profile controversy over strata insurance arrangements, ICA calls for more controls to ensure transparency of fees and supplier relationships, to prevent hidden fees and conflicts of interest between strata managers and service suppliers.

It also wants improved design and construction compliance in each state and territory, and enforcement of building maintenance regimes.

Let LMI help more buyers

The Insurance Council says the introduction of the federal government’s Home Guarantee Scheme – which provides loan security for house buyers with deposits as low as 2% – has led to a drop-off in demand for lenders’ mortgage insurance, which banks buy to support those who fall below the standard 20% deposit.

ICA says the drop-off suggests “the HGS is assisting not only those in the greatest need, but also those who are able to access LMI”.

It argues the guarantee scheme does not protect the economy to the same extent that LMI does, because the federal program is not priced to risk in the same way.

It wants the HGS redesigned, “including reducing the number of guarantees and targeting them to those in greatest need of assistance, ensuring the HGS can
operate effectively alongside the LMI industry as it was originally intended”.

Halt the hackers

ICA notes insurers’ interest in cybersecurity is twofold: as “critical economic institutions”, they are “perennial” targets for hackers; and they play a crucial role in the nation’s defences by covering and advising on risk.

“Cyber insurance is only one step in improving the cyber maturity of Australian businesses, and other initiatives are required to further improve Australia’s cyber hygiene,” the council says.

It wants the government to expand access to the Small Business Cyber Resilience Service – a free advice program helping companies with 19 or fewer staff – and improve data sharing with the insurance industry to enhance understanding of the threat environment and boost underwriting.

Close the liability gap

The council wants the next government to fund education on risk management and produce national standards for industries experiencing a high frequency of personal injury liability claims, and consequent problems with insurance affordability and availability.

It says businesses such as caravan and amusement parks and live music venues would benefit.

“The provision of targeted funding for risk management training and education programs for higher-risk industries can play a key role in helping to ensure
ongoing access to insurance and better protections for those industries and their stakeholders and customers.”

Time for tort reform

In line with its previous point, ICA calls for a national review of tort law and civil liability arrangements to examine their impact on SME and non-profit organisations’ ability to access insurance.

It says social inflation and a rise in compensation claims for psychological injury have driven up claims costs and forced insurers to lift premiums and reduce public liability coverage in industries such as amusements, tourism, leisure, live music and hospitality.

“There are several areas of potential reforms that should be considered … These could include use of statutory defined benefit frameworks for personal injury claims (similar to those used in CTP and workers’ compensation schemes) and the use of thresholds in relation to compensation for non-economic loss and gratuitous (informal) care.”

More spanners in the works

The paper closes with two recommendations for the motor industry. The first is action to address a national shortage of repair workers such as panel beaters, painters and mechanics.

“Repair delays caused by workforce shortages directly impact consumers through higher costs and longer wait times for motor insurance claims,” ICA says. “Left unaddressed, these shortages will further strain the industry and its customers.”

Among its suggestions are more investment in vocational training, partnerships with industry to raise apprenticeship completion rates from their current 58% level, and a streamlined skilled migration process.

Fix broken chains

ICA says that since 2019, the cost of motor spare parts has increased by 26%, after the decline of the local vehicle-making industry led to a reliance on global supply chains. It says prioritising motor manufacturing in industry resilience initiatives would create more domestic suppliers, and the supply of parts to independent repairers should be mandated to lift competition.