Up in smoke

Capacity is returning to small retail spaces after a flurry of ‘tobacco war’ firebombings sparked a retreat

By Claire Heaney

Buyers of black-market cigarettes and vapes may be pocketing savings, but the wider community is counting the cost of an illicit tobacco war.

Organised crime gangs’ arson attacks and ram raids on tobacconists have had a knock-on effect for insurance premiums and availability – not just for the shops selling illegal tobacco but for innocent neighbouring businesses and others caught in the crossfire.

Responding to community concerns about the escalating collateral damage from the tobacco wars – including a Melbourne woman killed in a case of mistaken identity – most states have stepped up regulation and enforcement.

A crackdown in New South Wales beefed up licensing laws to shut illegal tobacco stores for up to 90 days. More than 100 shops have been slapped with yellow “cease sales” notices. Landlords also have been given an out, with power to terminate a lease subject to a closure order.

It has resulted in a small but important improvement in insurance capacity, turning the clock back three years, according to some insurance industry figures.

Global reinsurance broker and advisor Howden Re’s Australia Pacific region director Adam Matteson says in 2022-23, the insurance industry made a tactical retreat.

“It was very, very clear that organised crime groups were jostling for ascendancy in the trade for tobacco, which had become very lucrative,” he says.

Mr Matteson says it reached the point – largely due to lack of regulation and legal support preventing attacks on tobacconists – that the industry had to step away.

He likens the situation to that of the tattoo industry about 2010 and some parts of the NSW construction industry, which lacked risk management via regulation and legislation.

Mr Matteson says the tobacco wars, sparked as the nation emerged from pandemic lockdowns, led to market failure.

But, he says, three developments last year produced subtle but important changes.

There were significant regulatory and legislative changes in the way the tobacco industry is licensed; police made moves to dismantle gangs involved in the black market; and a collaboration between government and law enforcement agencies led to an improved environment.

He says law enforcers appear to be aware of the operations, while stressing not all tobacconists are involved in the illicit trade.

“Capacity is slowly coming back. It is a work in progress.”

Mr Matteson says insurers look to evidence to inform their pricing and will be weighing the efficacy of regulation and enforcement over the coming year.

A couple of underwriters are showing intent to move ahead of the curve and are seeing value in the risk. But, he says, there are caveats to that coverage.

There might be limitations on arson cover for a mixed-use development if a tobacconist is a tenant. In some mixed-use sites, the tobacconist will be asked to pay the difference in premiums.

Mr Matteson says there are macro- and micro-considerations. The former relate to the legislative and enforcement situation, and the latter to measures such as improving security.

“The most obvious micro-consideration would be not to sell illegal tobacco.”

Australia Underwriting portfolio manager Akshay Vincent says although the risk associated with tobacconists varies, it appears to have eased.

“The frequency of arson and firebombing has gone down. The worst of it has gone, but the risk is still there,” he says.

“We are noticing some of the local insurance markets are finding a level of comfort with outlets that may be in a suburban shopping centre.

“From the insurance perspective, we are finding that outlets inside shopping centres or part of a franchise are pretty clean.”

Australia Underwriting focuses on hard-to-place medium and high risks, including tailored solutions for Far North Queensland properties with climate challenges, motorsports associations and unoccupied properties.

Mr Vincent says franchise outlets tend to have fixed product sourcing arrangements.

But there is greater concern around standalone outlets and those that may have suddenly started to sell tobacco. “They can be a bit iffy,” he says.

Mr Vincent notes that in strata buildings, the presence of a tobacconist can send premiums for neighbouring tenants soaring.

If a strip of strata shops houses low-risk service businesses such as accountants next to a tobacconist, all tenants may face higher premiums.

In some cases, landlords and strata managers may come to an arrangement that the tobacconist pays a higher portion of premium.

Mr Vincent says for up to two years after a tobacco business has left a premises after an arson attack, there will be red flags for landlord cover.

Insurers will look carefully at fire suppression and burglary security, plus a business owner’s track record and criminal history in some cases.

“This year we have had referrals. When we give … quotes for selling tobacco, some of these convenience stores go back to being convenience stores and not selling tobacco. Premiums are one tenth of the price.”

While insurers will demand case-by-case assessments, many classify tobacconists and vape shops as high risk and in the same league as tattoo parlours and nightclubs.

According to Australia Underwriting, insurers may demand independent risk surveys, strict adherence to security protocols and thermal scans that show any hotspots in switchboards and connections, overloaded circuits or faulty insulation.

Security measures may include bollards to help prevent ram raids, CCTV, security screens and so-called smoke cloak units. The smoke cloak, or fogging system, quickly fills an enclosed area with a harmless fog, reducing visibility. They are triggered by an alarm and can prevent or stall smash-and-grab incidents.

Mr Vincent says full disclosure is important, including around the sale of products such as vapes. Failure to do so will result in claim delays or refusal.

Whitbread Insurance Brokers says tobacconists – along with other high-risk insureds such as massage parlours, gaming rooms and tenants using or storing hazardous chemicals – continue to be a challenge.

But its Strata Insurance Market Outlook in January flags some good news, pointing to additional underwriting capacity and more bespoke solutions for owners’ corporations’ often complex risks. These include cover with premium loadings and specific exclusions.

“There are now solutions underwritten both onshore and offshore,” the report says.

Underwriter CHU’s 2025 State of the Strata Market report, released last October, says tobacco war attacks occurred in every state.

The report warned the firebombings were pushing the risk towards being uninsurable.

“For bodies corporate, buildings with tobacconists or vape tenants may face difficulty obtaining insurance. Committees may need to reassess tenant risk policies to avoid exposure to uninsurable businesses. Expect higher premiums or exclusions where schemes house high-risk retail outlets,” the report said.

“For brokers, expect insurer caution and stricter underwriting in mixed-use strata with tobacconist tenants.”

The Insurance Council of Australia says: “There have been a number of widely reported incidents regarding tobacconists and the illegal tobacco trade. Some insurers may be taking this into account when pricing or offering insurance for commercial landlords and businesses.

“Insurers are in ongoing conversation with police across various jurisdictions and exchange information with them in the instance of fires where appropriate.”