Northern Queensland MP Warren Entsch says he is increasingly confident funds will be allocated towards a catastrophe reinsurance pool in the Federal Budget given evidence of insurance market failure in Australia’s cyclone-prone regions.
Mr Entsch, a long-time campaigner for Government action on insurance issues, says momentum was fuelled by consultations after the Townsville flooding, while a recent insurance inquiry by the Australian Small Business and Family Enterprise Ombudsman has also highlighted the problems.
“We have now got to a point where I believe we have been able to prove market failure,” he told insuranceNEWS.com.au. “I am quietly confident we will be able to get something up in the next Budget.”
Mr Entsch, who represents the seat of Leichhardt, says a reinsurance pool could also provide natural disaster protection for other parts of Australia, although he has no specific details of models that may be under consideration.
The small business ombudsman’s inquiry, which also looked at liability cover problems, recommended the Australian Reinsurance Pool Corporation (ARPC) mandate be extended to natural disasters.
Conversely, the Australian Competition and Consumer Commission (ACCC) three-year inquiry into insurance issues in the nation’s north recommended against a reinsurance pool and said there was no market failure.
Mr Entsch, who also favours backing for an insurance mutual that could increase competition and benefit policyholder members, rejects the ACCC report as “not worth the paper it was written on”.
Mutual plans are also well advanced he says, but would require approval through the Australian Prudential Regulation Authority.
The Insurance Council of Australia (ICA) has focused on mitigation and planning issues to reduce risks rather than Government intervention in the form of pools.
Queensland-based Sure Insurance, which started nearly two years ago, says its entry has shown greater market competition is the key to driving down premiums and encouraging take-up of essential household and strata cover.
“The extremely positive point is that 10% of our customers who are now insured with Sure Insurance previously did not have any home or contents insurance cover whatsoever due to high costs,” MD Bradley Heath said.
Sure, which opposes Government pools, put forward a Catastrophe Event Provision (CER) model in a recent meeting with Assistant Treasurer Michael Sukkar.
Mr Heath says the model would allow insurers to place funds in a tax free reserve that could be drawn upon after a catastrophe, with no deduction when funds are spent.
“This is allowing insurers in the good years particularly to be able to fund a reserve to be able to pay for the bad years,” he told insuranceNEWS.com.au.
The net result to the taxpayer is zero, while the arrangement would help prevent jumps in premium expenses after major events.
The CER would be similar in concept to the use of Incurred But Not Reported (IBNR) claims reserves and could be adapted to address affordability issues in areas such and directors’ and officers’ insurance and other liability areas, Mr Heath says.