The devil’s in the detail

Tasmanians have been promised state insurance by 2026, but is this a much-needed intervention or a reckless gimmick?

By Miranda Maxwell

Depending on who you ask, the Tasmanian Liberals’ election pledge to launch a government general insurer is either a welcome way of dodging unfair mainland-inflated premiums, or it will recklessly burden a troubled state balance sheet with billions in liability exposures.

Local business groups applaud the policy from a party that – after 11 years in power – again scraped into minority government in an election triggered by a no-confidence vote in its leader Jeremy Rockliff.

Some insurance professionals agree with Mr Rockliff’s claim there is a market failure in the island state, which has a population of 576,000.

But it’s hard to find anyone with experience in insurance who agrees TasInsure is the answer to affordability issues, particularly in a state where tax on commercial premiums runs to 28% – seemingly low-hanging fruit for a government wanting to make cover cheaper.

The Insurance Council of Australia says if Tasmania’s 1967 Black Tuesday bushfires happened today, insured losses would total $4.1 billion. That’s against insurance revenue in the state of about $80 million a quarter.

Taking risk onto the public balance sheet is “a bad idea … particularly when that risk is expected to grow as a result of climate change”, ICA general manager of public affairs Mathew Jones says.

Mr Rockliff says Tasmania’s Motor Accidents Insurance Board will be expanded to offer home and contents, small business, community group, events and farm covers.

The MAIB has kept premium increases to just 5% in recent years, while broader premiums in Tasmania have risen more than 35%. This is insurance market failure, the premier says. “When families and small businesses are underinsuring or not insuring at all and insurance companies make billions of dollars of profit, the market is broken,” Mr Rockliff said on his first day back in parliament in September.

“There is no doubt an intervention in the market, if you like, is needed. Our stated commitment is very real … I don’t want to see a circumstance where we have increased exposure to floods and fire on the mainland and Tasmanians wear the brunt of that.”

General insurance risks are “not commensurate with the high premiums” charged, Mr Rockliff argues. And other parts of Australia may even follow Tasmania’s lead.  

“I look forward to the policy positions of other states and territories … that replicate TasInsure, whether that be VicInsure or WAInsure, QueenslandInsure,” Mr Rockliff said. “Tasmanians want us to intervene in the insurance market in Tasmania and we will intervene. We will also consult with all key stakeholders and welcome the opportunity to consult with the Insurance Council.”

David Reid, director at local broker Strategic Insurances Services, says the claim of market failure is “in essence, actually right” because premiums are “bordering on astronomical”.

It does not follow that a state insurer is the answer, though. “I can’t see how a state government insurance company can alleviate that. They’re blaming catastrophes on mainland Australia, and it may sound good to people without insurance knowledge, but … it’s not simple. It could cost the government a lot of money.”

The policy was announced soon after the calling of a snap July 19 election. There was a website, a shop frontage and a slogan: Cheaper. Fairer. Ours.

But new Labor leader Josh Willie has labelled the idea a gimmick, and former Labor premier Paul Lennon is owner of the business name TasInsure after discovering the Liberals neglected to register it.

“You made hats, jackets, stubby-holders and stickers,” Mr Willie said. “You even set up a fake office in Launceston with glossy signs. We have seen the style but we haven’t seen the substance.”

Complaints centred around scant detail are widespread, but draft legislation has been promised in 100 days and policies floated for next year.  

Mr Rockliff says he is “absolutely” committed to TasInsure and promises it will save households $250 a year and businesses 20% on premiums.

While the insurance industry has “reaped” annual profit of $6 billion, community groups can’t put on events and it is “only sensible that we need to find another way”, he says.

Hobart economist Saul Eslake says Tasmanians already pay the lowest average home and contents premiums in Australia, at $1838 – 17% below the population-weighted national average. The average in north Queensland is $4512, he calculates.

“It simply isn’t true that Tasmanians are being slugged to pay for natural disasters in other states,” Mr Eslake says.

MAIB does charge the lowest compulsory third party premiums in the country, but it has told the state’s Economic Regulator it predicts underwriting losses of almost $184 million over the five years to June 2029.

“It is actually not in a strong position to be expanding into the general insurance business,” Mr Eslake says. “Especially when you consider it is likely to become the ‘insurer of last resort’, that is, private insurers will decline to insure the highest risks … and a government-owned insurer won’t be allowed to charge premiums which reflect those higher risks.”

The National Insurance Brokers Association warns Tasmania is a concentrated market and a single event could “materially undermine the viability of any risk pool”. Member-owned motoring club RACT has warned against “simplistic solutions to complex challenges”.

Labor’s Mr Willie says community feedback is that the “thought bubble” plan is unfeasible, and all states and territories, including Tasmania, sold government insurance companies “decades ago for good reason”.

But the Liberal Party is adamant TasInsure will work. “Every time there’s a flood in Lismore, Tasmanians pay, and that’s not fair,” minister Nick Duigan said.