9. Improving affordability and access to flood insurance

The risk profile of Australian properties

9.1The Insurance Council of Australia (ICA) have estimated around 675,000 (4.4 per cent) properties in Australia face a greater than one per cent risk of flood each year, the equivalent of a 1-in-100 year flood risk, including around 230,000 (1.5 per cent) of properties which face a five percent flood risk, equivalent to a 1-in-20 year flood risk.[1]

9.2As shown below in Figure 9.1, in their submission to the Committee, the ICA provided a breakdown of the distribution of varying levels of flood risk to properties by jurisdiction using the National Flood Information Database (NFID), an address database containing 13.7 million property addresses, overlayed with the known flood risk according to local government flood mapping.

Source: Insurance Council of Australia, Submission 11, p. [8].

9.3The data from the NFID shows that known flood risks are concentrated on the east coast, with New South Wales (NSW), Queensland and Victoria accounting for 78.1 per cent of total properties in Australia, but representing 98.7 per cent of the properties exposed to a five percent Annual Exceedance Probability (AEP).

9.4Flood damaged properties account for greater insured (and uninsured) costs than any other peril, including bushfire, storm or non-flood related cyclone damage, with the same properties often incurring the damage. The ICA explained:

The damage from floods is disproportionate to the number of properties known to be exposed to flood risk. Despite flood events accounting for over 54 per cent of losses from declared insurance events in the last five years, only 4.4 per cent of properties nationally are exposed to 1%, 2% or 5% AEP.[2]

9.5For many property owners whose properties are exposed to a 1 per cent or greater flood risk, they are not able to access insurance for flood at actuarially fair prices. It is projected that climate change will result in more frequent and extreme weather events and also rising sea levels. This will expose an increasingly greater number of existing properties to higher flood risk. In turn, the number of property owners that will begin to find flood insurance unaffordable will presumably continue to rise.

9.6This growing protection gap will have wide-ranging ramifications for those affected as well as society more broadly. As Swiss Re reflected:

What we find is that when families are affected, so affected where they lose their home, if they're insured they'll be back on their feet within 6 months to 12 months, depending on the event. But it can take up to a decade for a family that's uninsured to come back to the same economic position they were in. That's just a series of knock-on effects which aren't great for a family, a community or a government in terms of welfare...[3]

Increased underlying flood risk is driving up premiums

9.7Short-duration, extreme rainfall events, as well as prolonged rainfall in the same location are predicted to become more common events as the climate warms.[4] This, combined with sea level rise, is expected to create more frequent flooding events and floods which are more powerful and damaging to the urban and natural environment. Properties which are the most exposed to flood, because they are located near waterways such as rivers and creeks, are likely to experience a greater number of floods, with shorter intervals between each flood and potentially much higher flood heights than has previously been recorded. The 2022 major floods provided insight into how devastating floods could become, with many property owners experiencing the highest floods to affect their region, repeated flooding, and water that lingered for months.

9.8Continued development in flood prone areas is also increasing aggregate risk and compounding the impacts of flood events. In some cases, the affected buildings are historical, built many years ago before the present or future risk of flood was properly conceived. However, the inquiry also received evidence of continued urban development and expansion into flood-prone areas. For example, the Northern Midlands Business Association told the Committee:

I have a cutting from a newspaper where…the Shire of Campaspe, near Echuca, approved some townhouses next to a river that had flooded 12 months beforehand in the same area where they approved these townhouses to be built. The insurance industry, through the Insurance Council, wrote to that council and asked if they could reverse it, because it was going to be impossible for the purchasers to get flood insurance in the future…the insurance companies often will only insure what's sudden and unforeseen. If you're building beside a river that's flooded for many years, nothing's unforeseen about that.[5]

9.9According to the ICA, CAT 221 was the largest insured event in Australian history and the second largest insured event in the world in 2022.[6] Insurers have been increasing premiums at a faster pace in recent years, primarily to account for the increasing cost of perils, and mainly in relation to growing flood risk for properties along arterial rivers.

9.10In addition to the rising costs of extreme weather events, the Australian Prudential Regulation Authority (APRA) also attributed rising premiums to a combination of interest rates, inflation, supply chain strain, rising housing prices and tight labour market conditions.[7]

9.11The ICA told the Committee that the costs of natural disasters are being felt by all Australians, whether they are directly exposed to peril risk or not:

Wherever you live in Australia, whether you're directly exposed to extreme weather impacts or not, premiums are rising because of the escalating costs of natural disasters, the growing value of our assets, inflation driving up building and vehicle repair costs and the increasing cost of capital for insurers. These pressures are not unique to Australia. They're being felt around the world, including markets with similar risks such as Canada and California.[8]

9.12The Committee was provided with substantial evidence showing the impacts of rising flood risk on insurance costs and, by extension, premiums. Data provided by APRA shows that the most significant factor contributing to premium increases is the rise in the cost of claims.

Figure 9.2Aggregate Insurers' Policy Components - Home Insurance

Source: Australian Prudential Regulation Authority, Supplementary Submission 56.1, p. 8, based on data from APRA Quarterly General Insurance Statistics

9.13Figure 9.2 illustrates the relationship between Gross Written Premiums (GWP) with claims, underwriting expenses, and reinsurance expenses. In broad terms, GWP is an insurer’s incoming revenue for a particular business line (home insurance in Figure 9.2). The other three lines are the “outgoings” or expenses. Of these, claims payments are both the largest and the most volatile. Where the bottom three lines (claims, reinsurance and underwriting expenses) sum to more than the top line (GWP), the insurer will be making a loss on that business line. This is reflected in Figure 9.5 below.

9.14Figure 9.3 shows the total cost of claims to insurers and aggregate premiums for home insurance over the past decade. There has been an upward trend in total claim costs (at a much higher rate than written risks), which APRA attributes to the increased frequency and severity of extreme weather events in recent years (particularly flood), the rising number of households being impacted by these events and sustained inflation in the construction and resources sectors. Insurers have been raising premiums in response.[9]

Source: Australian Prudential Regulation Authority, Supplementary Submission 56.1, p. 7, based on data from APRA Quarterly General Insurance Statistics

9.15APRA provided further context in their submission, stating:

The total value of GI [General Insurance] premiums has doubled since 2011, with GWP increasing from $34bn to $69bn. Within this, home insurance GWP has increased from $5.3bn to $13bn. In this time, however, there has not been a comparable growth in the policy numbers, indicating that premium increases for customers have been the major driver of GWP growth.[10]

9.16It is worth noting that home insurance GWP has increased proportionately more over this period (145 per cent) than GWP for general insurance more generally (102 per cent).

The structure of the general insurance market

9.17The Australian general insurance industry is a moderately competitive market with over 70 insurers licenced by APRA.[11] Data published by IBISWorld, indicates the market share concentration for the general insurance industry in Australia is moderate, meaning that the top four companies generate between 40 per cent and 70 per cent of industry revenue. The average concentration in the sector is 38 per cent. Home insurance makes up almost 20 per cent of industry revenue and motor vehicle insurance just over 31 per cent.[12]

9.18APRA is able to confirm that from each of the financial years from 2018 until 2023, the top five insurers have constituted over 70 per cent of the total industry GWP in householders’ insurance.

9.19The APRA market share analysis suggests that there are a number of aspects of the general insurance market worthy of further examination. First, it is a market with a high degree of concentration. This suggests the possibility of at least some degree of market power. Second, the small market share of smaller and emerging insurers raises questions as to their capacity to take on risk. It would be worth examining whether smaller insurers are more prone to avoiding high-risk regions or properties than larger insurers (due to a smaller insurers’ capacity to diversify). Thirdly, it would be worth examining whether smaller insurers lack capacity in relation to increasing their capability in areas materially impacted by natural disasters. It is possible that some of the recommendations in this report will at least partially offset any such limitations (for example, developing industry wide Q&As for distribution at all emergency relief centres and greater nationwide investment in mitigation).

9.20While Australia’s largest insurers ensure there is a strong national market for insurance, not all insurers have national coverage, with some having a larger presence in certain states or regions than others. For example, Suncorp has a significant presence in Queensland, with its headquarters located in Brisbane, while Insurance Australia Group (IAG) has a high concentration of policyholders in NSW, particularly in the regions. Smaller insurance firms are more likely to target specific areas to cover, by geography or by risk profile, which can enhance competition in and lower premiums for some policyholders. The tendency for smaller insurers to avoid offering insurance in locations with high flood risk is understood to provide some benefit to other parts of the market as the insurers could be expected to incur lower losses, which may contribute to them being able to offer lower premiums to lower risk customers, but could also be exacerbating non- or under-insurance in locations prone to floods.

9.21There are also a range of ways general insurance products are sold to consumers. Insurers sell products directly to consumers, but there are also various intermediary channels as well, including through insurance brokers, online aggregators, other organisations (such as financial institutions) and underwriting agencies (who may manage the product value chain on behalf of the insurer).[13]

Why the market for flood insurance is breaking down for the riskiest properties

Insurers are reducing their exposure to flood risk

9.22As identified earlier in Chapter 3, the Committee heard that in the wake of the 2022 major floods, several insurers have been re-evaluating their exposure to flood risk across their policies. As a result, several insurers have made decisions which impact the availability and affordability of flood cover for policyholders. Most insurers have adopted a combination of strategies to reduce their exposure to flood risk. This includes reducing their flood coverage (as an inclusion in their policies or beyond a certain number of households the insurer is comfortable covering),or raising premiums to better account for the future flood risk of the insured assets underlying the policy. Some insurers have also been exploring options such as increasing the excess or reducing coverage for some products.[14]

9.23The ICA’s NFID, combined with a concerted effort by local councils to improve the currency and granularity of flood mapping, has allowed insurers to more accurately determine the locations which carry a greater risk of flood. All large insurers are now able to estimate risk to the postcode or equivalent level and a few larger insurers are capable of estimating risk to the property level after making significant investments in data and technology. These advancements are being incorporated into insurers’ risk modelling and their decisions regarding their exposure and pricing.

Flood insurance is becoming increasingly unaffordable for properties with the highest risk

9.24Policyholders, consumer groups, insurers, regulators and other stakeholders confirmed throughout the inquiry that flood insurance is becoming increasingly unaffordable for the 4.4 per cent of properties with a 1, 2, or 5 per cent AEP.[15] An even higher proportion of households are “affordability-stressed” (15 per cent) as defined by the Actuaries Institute.[16] Policyholders who have a lower exposure to perils are the most likely to benefit from insurers’ collection of more granular data through lower premiums being offered, especially if insurers’ use of the data enhances competition for lower risk customers.

9.25However, the inverse effects have already been observed by higher risk policyholders through significantly increased quotes for flood coverage and some insurers opting not to supply insurance citing limits on their exposure to flood risk or an unwillingness to offer home insurance without flood cover. APRA described the issue for high-risk households:

Insurance, by nature, is about pooling risk so that risk is shared, and the payments by many are often reaped for the benefits of a few…My personal view is that, once you move to pricing individually like that, probably the most vulnerable people who live in the places where the risk is the highest actually are faced with increasing premiums again. So it's a bit of a vicious circle.[17]

I think the key point there is the pooling concept. If you take that away, absolutely, some people would get a discount on their premiums, but, actually, it's the people who are the most exposed now—and potentially will be exposed in the future—who will see a very significant increase in their premiums as the insurers risk-rate that. Or they'll just see coverage disappearing. In a sense, that pooling concept allows the insurers to at least offer coverage where they can.[18]

9.26Where insurers have offered optional flood cover, the difference in price with and without flood cover can be substantial (thousands or tens of thousands of dollars).[19] Responses to the Committee’s survey showed that of the 273 people that indicated they had renewed a current general insurance policy, 26 (or 9.5 per cent) said their annual premium had increased by more than $5,000.[20]

9.27Throughout the inquiry, the Committee heard many people affected by the 2022 major floods, or previous floods in recent years, were now without flood cover as part of their insurance, and in a few cases were without any insurance at all.

9.28Allianz reported a larger proportion of its customers exposed to high flood risk were not taking out cover since the 2022 floods, with an increase from 62 per cent of customers with the highest flood risk rating not taking out cover in 2022 rising to 73 per cent in 2023. This included new customers not taking out flood cover and existing customers not renewing cover.[21]

9.29While the Committee did not receive specific data around premium increases, the evidence received certainly supports the findings of the Actuaries Institute in the last three of its home and property insurance affordability reports released, which finds the number of households experiencing insurance affordability stress has increased year-on-year from 2022 and 2024.

9.30In the Institute’s most recent update it was revealed that in 2024, 15 per cent of households are believed to be experiencing home insurance affordability stress (determined when the annual cost of home insurance exceeds four weeks of gross household income). This finding represents a year-on-year increase from 12 per cent of households experiencing affordability stress in 2023 and 10 per cent in 2022. This equates to an increase from approximately 1 million households experiencing insurance affordability stress in 2022, to 1.24 million in 2023, to a further 1.6 million households in 2024. This represents a 30 per cent increase in the number of households experiencing affordability stress between 2023 and 2024.[22]

9.31In its reports, the Institute attributes the increases in insurance affordability stress to the rising cost of perils, particularly flood insurance, and the correlation between increasing premiums and lower-income households being more likely to own in more ’affordable’ locations, which housing in flood-prone areas can provide.[23]

9.32The Institute also examined the dispersion of premiums across insurers at the same property by requesting premiums from a range of insurers for particular addresses. It found that:

The most expensive premiums offered are around four times higher than the median premium, and seven times higher than the cheapest premium. This gap increases for the most expensive policies. The cheapest premiums offered in the market can be around half the cost of the median premium.[24]

9.33The Institute estimated that shopping around could greatly benefit consumers:

…if households purchased the 25th percentile premium policy offered, our estimate of affordability-stressed households in 2024 would reduce from 15% (assuming a median premium) to 11%.[25]

9.34This is an issue worthy of further study, and one which raises several questions.First, how much the price dispersion observed by the Institute is due to a difference in pricing of the underlying risk and how much of the variation is due to differences in coverage (for example, variation in excesses, limits on coverage, limits on payouts in certain situations)? Second, how often did high premiums reflect insurers going through the motion of offering a quote without wanting to offer coverage, either due to their assessment of the risk at the individual property or due to that insurer already being heavily exposed to the peril in that region? Third, what are the implications of such a wide dispersion on the competitive dynamics of the market? If only a small number of insurers are offering low premiums in a particular area, does that represent a low amount of competitive tension? And do consumer barriers to finding the full range of prices on offer reflect an additional barrier to competition?

9.35For communities prone to flooding there is a sense that the insurance market is disappearing as cross subsidisation for higher risk properties is reduced. The Clarence Valley Council observed:

The premiums are so specific and so targeted that some insurance companies don't even offer flood cover anymore. You can't even have it as an option. It's just not even available…the risk used to be spread amongst the community. We weren't targeted. If the Richmond River floods every seven years, the insurance companies are going: 'Your house is worth $1 million. Let's divide $1 million by seven years, and that's what your premium is—plus 20 per cent plus CPI.' To me, that's not the way that the premiums should be set.[26]

9.36Other stakeholders were concerned about consumers in flood prone locations experiencing increasingly unaffordable premiums when they are the most likely to be unable to afford the insurance, to move to less risky locations or to be able to afford mitigation on their properties.[27] For example, Legal Aid Queensland submitted:

Queenslanders in flood affected areas that have experienced recurrent natural disasters are increasingly unable to afford the premiums for flood cover leaving fewer who are insured and many who have no insurance cover at all. Many areas in Southeast Queensland that are flood prone are also areas of significant economic disadvantage. Residents of these areas simply cannot afford the increased premiums being charged to insure against the risk of floods. Some consumers in Queensland are being quoted insurance premiums that provide flood cover costing in the tens of thousands of dollars. Anecdotally the highest premium LAQ is aware of some consumers who have received quotes for flood insurance in excess of $60,000 per annum.[28]

9.37The Committee heard that local councils are also experiencing greater difficulties obtaining insurance for council-owned assets. CivicRisk Mutual, a local government insurance mutual, explained:

The market has hardened dramatically over the last six years, since probably about 2018. Market hardening means that it's become more expensive.[29]

9.38CivicRisk Mutual told the Committee it has had to increase the number of insurers from one to 26 for property, and increase self-insured retention (an amount that must be paid by the insured) from $1 million to $7.5 million.[30]

“Opt-out” insurance is becoming more difficult to obtain

9.39Following the 2011 floods in South-East Queensland, some insurers in the flood insurance market moved from opt-in to opt-out. This resulted in an increase in flood insurance coverage for those households with low to moderate risk. For households with high risk of flood, opt-out enabled access to insurance at an affordable rate by opting out of flood.

9.40However, over time, some insurers moved away from opt-out as it provided greater clarity for policyholders and reduced the level of hydrology disputes following major natural disasters. For example, in recent commentary on the state of the home insurance market in Queensland, a Royal Automobile Club of Queensland Limited (RACQ) spokesperson stated that: “Every RACQ Home and Contents Insurance policy covers loss from storm, flood, hail, fire and theft.” “This creates certainty at claim time. RACQ does not permit exclusion of flood.”[31] In addition to RACQ, Suncorp, QBE, Youi and Hollard told the Committee that they provide flood cover as standard in most or all of their home and contents policies.[32]

9.41While some insurers offer opt-out, the availability of this option is limited. For example, AAMI offers opt-out for some high-risk properties, but Suncorp’s flagship, self-named product doesn’t. For Suncorp’s main product, flood coverage is mandatory,[33] while Auto & General Insurance Company Limited (A&G) offers flood cover as an add-on option for home and contents policies.[34] The availability of opt-out appears to be declining over time as many insurers seek to avoid disputes over the cause of water damage after disasters.

9.42During the course of the inquiry, Allianz moved away from offering opt-out insurance other than for a small number of high-risk legacy customers. On 14 May 2024, it announced that “Allianz will be changing its Householder insurance products to include flood cover as standard for all new customers of our Home Building, Contents and Landlords policies.” Allianz further stated that:

As a result of this change, existing customers with a low to moderate flood risk, and all new policyholders, will have the confidence that they are covered for flooding, regardless of whether it is caused by rainwater runoff or riverine flooding.[35]

9.43IAG’s main brand in NSW, NRMA, was cited on a number of occasions during the inquiry as requiring opt-out of all weather-related water damage, not just riverine flood and confirmed by IAG’s evidence to the inquiry.[36] This was highlighted by many as causing considerable confusion among many customers.[37] But an additional dimension of this that is worth noting is that it reflects a market in which all insurers now appear to be moving away from opt-out of riverine flood. They are either mandating full coverage or allowing opt-out but for all forms of water damage.

9.44While moving away from opt-out to standard, mandatory cover for flood may provide greater certainty, it also has the potential to lead to a situation in which hundreds of thousands of properties may not be able to secure any home and contents insurance at all. It would certainly be doubtful that many (if any) of the 200,000 plus properties at 1-in-20 year risk or higher, as identified on the NFID, would be able to afford insurance. This would not be a socially acceptable outcome.

Reduced profitability of home insurance products

9.45The Committee received evidence from insurers that the profitability of home insurance products has been declining for some time. For an insurance product to be profitable, premiums collected must be higher than incurred claims and underwriting expenses (general expenses associated with running the insurance business), as well as reinsurance costs.[38]

9.46Following the major floods, insurers received some criticism for the industries’ collective profit of $4.5 billion for the 2022-23 financial year, with some stakeholders questioning how insurance companies could have made a profit after the reported $7.7 billion in unexpected losses from claims related to the 2022 floods. Figure 9.4 shows insurers aggregate net profits after tax.

Source: Australian Prudential Regulation Authority, Supplementary Submission 56.1, p. 6, based on data from APRA Quarterly General Insurance Statistics

9.47In public hearing evidence, the ICA attributed the profit to good returns on investments held by insurers, as well as a return to profitability in the commercial insurance space and release of provisions that were held for COVID-19.[39] The ICA told the Committee that these lines of profitability were offsetting ongoing losses from its home and contents and motor insurance lines which was problematic for the industry.

You want insurance products to be able to stand on their own two feet. They shouldn't be cross-subsidising each other. Home and contents needs to be a profitable business so that we can pay the claims when they fall due.[40]

9.48APRA made similar observations, noting in its submission that despite insurers’ headline profitability, claims costs were increasing for the home and motor lines of business, suggesting longer term sustainability issues in these lines of business. Figure 9.5, from APRA’s submission, shows the Average Insurers’ Combined Operating Ratio (COR)[41] across all product lines and home insurance. A lower COR means insurers are generating a profit from their product lines, whereas a higher COR means insurance profits are lower. A COR of greater than 100 indicates that a business line is making losses. Figure 9.5 shows that in FY20 and FY21, all product lines experienced decreased levels of profitability and since FY20, home insurance product lines have been unprofitable, despite increases in premiums over this time.[42]

Source: Australian Prudential Regulation Authority, Supplementary Submission 56.1, p. 7, based on data from APRA Quarterly General Insurance Statistics

The impact of increasing flood risk on reinsurance

9.49The Committee heard from insurers, reinsurers and APRA that since the 2022 major floods, reinsurance costs have increased dramatically and is one of the main drivers behind insurers increasing their premiums.

9.50Australian insurers told the Committee that, in previous years, reinsurers were attracted to the Australian market because it allowed reinsurers to better diversify their risks and protect themselves, to an extent, against the extreme weather events specific to the northern hemisphere, in particular, the hurricanes and related flooding that impacts the United States. Some reinsurers indicated that they (and other reinsurers) have recently reassessed the diversification benefits of covering Australia. This has been one reason for increases in reinsurance cost increases.

9.51Insurers and reinsurers attributed rising reinsurance costs to the impact of more extreme weather events, development and growing asset values contributing to rising claim costs and higher inflation.[43]

9.52The ICA explained why reinsurers no longer see Australia as a hedge against losses as climate change takes effect:

…our losses are sitting up there with the best of them globally as well. They point to a climate-change future, but they say in the here and now, in the climate we live in right now, we have allowed too much development to occur in peril-exposed areas, and the value of those assets have gone up enormously, particularly driven by the cost of inputs to rebuild them.[44]

9.53The ICA told the Committee that Australian insurers had faced recent increases in their reinsurance costs of 20-30 per cent,[45] and that there is a risk of Australia being viewed as a less attractive market by reinsurers, explaining:

Reinsurance is purchased in a global market and Australia and Australian insurers are competing with other countries for reinsurers’ capital. If Australia is viewed as a less attractive destination for capital or the Australian insurance market is viewed as more volatile or less profitable than historical norms, reinsurance costs will rise.[46]

9.54APRA noted that Australia is still an attractive market for private sector reinsurers, and that reinsurers are still willing to operate and make capital available in Australia, however reinsurers are seeking more recognition of extreme weather risks and to see steps put in place to mitigate risk.[47] APRA considered the increased costs of reinsurance in Australia as ‘bringing Australia more in line with actual global standards’ by increasing retentions, requiring insurers to hold more of the risk, and increasing the cost of the reinsurance component of insurers’ portfolios.[48]

9.55Reinsurers considered that increasing reinsurance costs were being driven by the increasing cost of claims, which is informing their expectations on what events could cost, and the increasing costs of buildings and repairs in recent years.[49]

9.56Some reinsurers appeared to be more comfortable with continuing to offer reinsurance for catastrophe risks in Australia long term than others. For example, Lloyd’s Australia (Lloyd’s) indicated that reinsurers may begin isolating perils from other risks in the coverage they provide:

So there are a lot of moving parts that make up the overall cost of the reinsurance. As we see the next five, 10 or 20 years evolve…If we see those perils starting to become more prevalent and more prominent in terms of the impact they're having on the direct markets, then the reinsurance and insurance market is likely to adapt. It's likely to change and start picking out some of those peak perils, if you like, and dealing with them in isolation.[50]

9.57Munich Re indicated there hasn’t been an issue with reinsurers capacity to cover perils in Australia, partly because the total sum insured is so much less than other countries, such as in the United States:

…what we've experienced in Australia… is that, as the total sum insured in Australia is so much less than it is in the United States, there hasn't been an issue with the capacity available for those peak risks.[51]

9.58However, Munich Re noted Australia has comparatively high flood coverage when compared to other jurisdictions, with a higher proportion of properties located in high-risk locations:

Australia has, most likely, higher flood coverage than in many other privately underwritten jurisdictions… we probably have a higher percentage of properties exposed to flood than other jurisdictions. If you think about the topography of Australia and where we build, historically how trade was done, we have a lot of properties built near rivers.[52]

Improving information flows about flood risk to consumers

9.59Stakeholders wished to see more action being taken by governments and insurers to improve the availability of information about the flood risk of a property or area, and the actions consumers can take to reduce flood risk.

Historical flooding data needs to be better communicated to current and prospective owners

9.60The Committee heard many recounts of experiences where property owners impacted by the 2022 major floods were not aware of the flood risk for their properties or that their property had flooded previously. For some people the flood that occurred in 2022 was the first time the property had been affected but, in many cases, the property had been flooded in the years or decades prior. In their responses to the Committee’s survey, 55 per cent of respondents said they were either not aware of, or unsure of, their property’s flood risk prior to purchasing the property or renting it.[53]

9.61One submission to the Committee explained that a resident in the major floods only discovered their property had been repeatedly flooded over the last decade through conversations with neighbours after purchase.[54]

9.62In its submission, Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice identified that:

Insurance consumers are currently told very little, if anything at all, about the specific risks that they are insuring against and how much that specific coverage costs. While there may be some risk mapping services available, the extent to which these tools are currently used by consumers is unclear.[55]

9.63Several Councils also observed that many people’s processes for conducting due diligence prior to buying a house, often one of the biggest purchases a person will make, won’t include investigation into flood risk. Ipswich City Council told the Committee:

…we often say that people spend more time doing their due diligence when buying a second-hand car than they do looking at the planning and zoning of their own homes when they go to buy [a property].[56]

9.64Ms Venecia Wilson also shared with the Committee:

Mandatory flood history disclosure for each property must be introduced when properties go up for sale. There is no flood history disclosure. A section 10.7 certificate, which is a zoning certificate attached at the back of a contract, is deficient and it does not give people enough information. Tenants don't get given any flood information at all. Some of these properties have been sold over and over again, and people are copping the impacts over and over again.[57]

9.65A representative from the Central Coast Council also noted that original building approvals are rarely secured by prospective home buyers and are not required to be provided during a sale, leaving some new owners uninformed about the potential for flood damage to lower levels:

Often, real estate agents advertise dwellings giving the impression that all living areas are approved. As a result, some buyers may not be aware of the risk unless their conveyancer brings it to their attention. The flood damage associated with these dwellings with unapproved floor levels is typically much higher and more frequent.[58]

9.66CivicRisk Mutual believed policyholders should be asked to confirm whether floor areas in their dwelling are being used in accordance with the original building approval, to incite greater compliance and reduce the risk borne by insurers, as well as banks which may be holding a mortgage.[59]

9.6751 per cent of respondents to the Committee’s survey said they did not observe clauses which outlined flood risk in their sale contracts.[60]

9.68In its 2024-25 Pre-Budget Submission, the ICA submitted that publicly available flood risk data would improve public awareness of vulnerable areas.[61] The Planning Institute of Australia (Victoria) also noted in their submission that awareness of flood risk can strongly influence an individual’s decision on the purchase of property or decisions on levels of insurance held.[62]

9.69In its Northern Australia Insurance Inquiry report, the Australian Competition and Consumer Commission (ACCC) supported the implementation of measures to improve the information provided to potential home buyers by prompting consumers to obtain an insurance estimate as part of their due diligence prior to purchasing a property. The ACCC believed this would help reduce instances of new homeowners experiencing insurance payment difficulties.[63]

9.70The Royal Commission into National Natural Disaster Arrangements also supported measures to better communicate natural hazard risk information to the public, particularly to people that are making decisions that will affect their exposure to natural hazard risks.[64]

9.71Many stakeholders believe governments at all levels should coordinate and contribute to a national database identifying the flood risk of properties that is searchable by the public. For example, Disaster Legal Help Victoria argued:

The Federal Government should require one of its relevant agencies, such as the Climate Change Authority, to hold detailed flood risk information nation-wide and make it publicly accessible, so that Australians are aware of climate and disaster risk when purchasing or renting property.[65]

9.72The NSW 2022 Flood Inquiry report recommended that an online visualisation tool be developed to display the extent of known disasters that have affected each land parcel and title in NSW in the past.[66] It noted that this data should be revised and updated at least every two years and after each major natural disaster.[67]

9.73Several stakeholders believed the insurance industry could assist with facilitating information about previous floods to prospective buyers by providing prospective buyers with the ability to obtain a quote without owning the property. For example, Financial Counselling Australia noted:

…one way is that when people take out insurance they will see that flood cover is $25,000. That probably is one alert that demonstrates that they may well be in [a] flood area.[68]

Governments and insurers need to provide accessible, useful and consistent information about flood mitigation options to consumers

9.74The Committee heard that many stakeholders are supportive of governments and insurers providing more information to consumers about the actions they can take to mitigate flood risk to their properties.[69]

9.75Some insurers have already begun enhancing their efforts to educate policyholders and communities about the actions they can take to make their homes more resilient. For example, in 2021, Suncorp Insurance launched the One House program, a partnership with CSIRO, James Cook University and Room11 Architects, to design, prototype and test what could be Australia’s most resilient home. In 2022, Suncorp also launched Resilience Road, a follow up initiative aimed at encouraging homeowners to take practical steps to strengthen and safeguard their homes against extreme weather.[70]

9.76Allianz similarly told the Committee it had recently partnered with Disaster Relief Australia (DRA) to enable the volunteer-run nonprofit to deliver its 'Big Map' initiative to assist vulnerable communities to plan for future natural disasters, particularly fire and flood, stating:

Using DRA's mapping and drone technology, large scale floor maps are produced profiling areas in a community at risk of fire and flooding. Community sessions enable local residents to visualise their community's and their own property's risk profile and explore ways to build resilience and reduce the impact of future disaster events. Allianz's Disaster and Recovery Team attends these sessions to help arm residents with the right information to ensure they're adequately covered before a disaster, and provide information on how their insurer can support them after an event.[71]

9.77The National Emergence Management Agency (NEMA) told the Committee that the hazard risk Mitigation Measures Knowledge Base being developed through the Hazards Insurance Partnership (HIP) will help provide important information to consumers about the actions they can take to mitigate risk at the household level, stating:

The intent is to generate specific tangible interventions or actions that households can be encouraged to take to reduce their risk…We want it to be a product that the public can use, access and go, 'Okay, yes, those are actions I could take.' We're aiming to ensure that there's a user designed interface and platform for people to use—and they can access [to] that through NEMA's own website.[72]

9.78Stakeholders were generally supportive of an app being created similar to the Bushfire Resilience Rating Home Assessment app, to inform consumers about the measures they can take to make their properties more flood resilient as part of broader efforts to improve information flowing to consumers on flood risk mitigation.

9.79Some stakeholders believed flood risk should be disclosed on the property title so that when consumers are seeking to purchase a property, they are provided with information about the properties flood risk. This would flag to prospective homeowners the potential costs that may be incurred as part of owning the property and allow them to make more informed decisions for their future.[73]

9.80Several insurers believed improving disclosure to property buyers about the level of flood risk a property is exposed to would help reduce the likelihood of additional development on high-risk land.[74]

9.81Updated flood maps and flood modelling are currently being made available to communities on a somewhat ad hoc basis. Some councils and water authorities are releasing this modelling and some are not. As noted earlier, the Committee believes that the entity creating the flood maps or modelling will generally be best positioned to release it. It will have the best understanding of how the maps and modelling were created. It will also have a close relationship with the local community and will be able to release the information in a staged way that involves appropriate consultation.

Reducing underlying risk to improve insurance affordability

9.82The 2022 major floods brought to the fore for many communities (and the stakeholders that service them) that significant, impactful steps need to be taken to reduce flood risk.

9.83In addition to policyholders themselves, perhaps unsurprisingly, the two sectors calling the most strongly for meaningful federal and state government action were from local councils and the insurance industry. With local councils often responsible for the design and implementation of flood mitigation planning (which may be reliant on state or federal funding) and insurers having gained substantial new information through improved data collection, access to modelling and research in recent years about the projected impacts of increasingly frequent and severe floods on Australian households and businesses is increasing the call for action.

9.84There have been several state-based inquiries into each of the major floods which have included recommendations to reduce flood risk for households. For example, the 2022 NSW Flood Inquiry made recommendations around planning decisions and mitigation efforts, including not releasing or developing land with a known disaster risk, government buybacks of high-risk properties, the relocation of people to safer areas and retrofits or home raisings to improve building resilience.[75]

9.85The insurance industry has also released several papers and research reports preceding and following the major floods that have advocated for specific actions the government should consider to reduce underlying flood risk to help reduce the cost of insurance for policyholders.[76]

Land use planning and building resilience

9.86Land use planning is an important measure of limiting future vulnerabilities and losses from natural disaster in areas of new development. It can also help manage growth in risk by limiting or modifying the location or features of new and existing developments to reduce the impacts of disasters on communities.[77]

9.87Many stakeholders advocated strongly for policy solutions to reduce flood risk in Australia, including investment in community mitigation infrastructure, land use planning and better building standards.[78]

9.88The insurance industry made it clear to the Committee that insurance would not become more affordable for households and businesses if action was not taken to reduce flood risks to properties where possible by governments, communities and individual property owners.

9.89The Insurance Council of Australia told the Committee:

Action in these areas would both reduce the risk to individuals and communities (and in turn pressure on the insurance system) and reduce pressure on affordability over the longer term. These policy concepts have been well understood but have been kicked down the road for too long. Some will take years to fully implement and further delays will only continue exacerbate the challenges of higher migration and the future impact of climate change.[79]

9.90In December 2022, it was announced by the National Cabinet that Planning Ministers had been tasked with developing a national standard for considering disaster and climate risk, as part of land use planning and building reform processes, declaring “that the days of developing on floodplains needs to end”. Planning Ministers were to report back to National Cabinet in 2023.[80]At the time of writing, no publicly available outcomes were available from this process.

9.91The ICA noted that moving from this general agreement to specific policies and clear direction will require strong leadership and significant effort.[81]

9.92Hollard told the Committee that there are a range of complex interacting factors and pressures that influence land development, including in disaster-prone areas, and that reducing the likelihood of additional development occurring on high-risk land, and the risks associated with such development, requires effective land use planning by councils.[82]

9.93Tweed Shire Council told the Committee that NSW already had planning systems in place to enable development of the flood plain for more compatible uses in more flood-prone areas, such as for recreation or for agricultural industry.[83]

9.94Many councils believed they were already implementing robust policies that prevented development, or at least residential development on flood prone land.[84] For example, the Tweed Shire Council told the Committee that in accordance with the NSW Flood Risk Management Manual, local councils have generally adopted the 1-in-100 year rule for flood planning levels for residential development.[85] Of the 35 councils that participated in the inquiry, several appeared to be satisfied with restricting development for new residential builds with a 1-in-100 year flood risk, while others were concerned that the increasing frequency and intensity of floods meant the threshold would become outdated over coming decades, and new builds just outside of this risk level could become new areas impacted by floods.

9.95Other stakeholders also questioned the broad consensus for a 1-in-100-year threshold for council approvals for new developments, with stakeholders noting that at this point in time, houses in areas rated to this threshold have flooded multiple times.

9.96Some stakeholders argued higher thresholds are required to avoid more homes impacted by floods and rising costs. For example, the Cairns Chamber of Commerce argued:

…we need to stop building in flood zones. That's not just in North Queensland. Lismore and places in New South Wales have had the same experiences. If we are going to build in those areas, then we need to build to withstand not just this one-in-100-years flood, because it's happened more than once in 100 years.[86]

9.97Insurers also supported amending current land planning practices to better account for flood level modelling projected to a future time, such as 2050 or beyond.[87] For example, Melbourne Water’s recently released flood modelling for the Maribyrnong River was based on a 2024 and a 2100 scenario[88].

9.98Some councils also believed the current approach for individual councils to undertake flood mapping and modelling, usually through contracting local or independent organisations to undertake mapping, while adhering to high-level guidance, is causing a high degree of variation in the data councils are collecting and through which decisions are being made. For example, the City of Moreton Bay noted:

A traditional approach to land use planning is based on 'go' and 'no-go' areas defined by a simple design standard, such as the one-in-100-year level, resulting in different outcomes from council to council and from state to state. This binary approach has been deficient when there have been larger and more devastating events than the one-in-100-year events, and it unintentionally utilises incorrect assumptions about flood risk.[89]

9.99The City of Moreton Bay described the critical role councils play to reduce harm to communities:

The role of councils in understanding flood behaviour, flood hazards and the risk to the community has significantly improved over the past few decades. We are now much more cognisant of flood risks that cover the full spectrum of potential flood events, from small, nuanced floods all the way to very rare, catastrophic events that can devastate communities and annihilate anything in their path. We're also more cognisant of the potential impacts of climate change. Rainfall is projected to become more intense, resulting in greater flood risks in the future. Effective land use planning can help improve resilience outcomes. Capital works and infrastructure investments can help alleviate localised flooding impacts on existing houses and potentially also make land available for more intense development, which requires significant investment from councils.[90]

Investment in community level mitigation

9.100In 2014, the Productivity Commission released a report into natural disaster funding.[91]The report examined the three years from 2009-10 through to 2012-13. During this period, it found that the Australian government spent around $115 million on mitigation with at least $110 million of matched (mostly state) expenditure.

9.101This figure of around $215 million is far less than the $8 billion in funding from the Australian government for post-disaster recovery with at least another $6.5 billion from state and local governments (mostly state).[92]

9.102The Productivity Commission found that governments in Australia (at all levels) spent 97 per cent of funding cleaning up after disasters and a mere 3 per cent on pre-disaster preparation and mitigation.

9.103Since that time, the Australian government has reweighted its effort, with a commitment to at least $200 million of investment each year into community mitigation through the Disaster Ready Fund (DRF).[93]

9.104In addition, the Australian, Queensland and NSW governments have invested considerably in mitigation and preparedness following the 2022 floods, primarily in the Northern Rivers and SE Queensland areas. Much of this expenditure has focused on house buybacks and resilience measures (for example, raising houses). These programs total over $1.5 billion. There are signs that similar programs might be rolled out in other areas. While this increase in mitigation and preparedness expenditure has shifted the dial, it is still skewed towards recovery and relief.

9.105Even after this significant increase in mitigation funding, both local councils and insurers argued that further financial support is needed for councils to undertake community level, higher impact mitigation works identified through flood mapping and planning activities.

9.106Consumer advocacy groups such as Disaster Legal Help Victoria and Legal Aid Queensland also supported the Australian Government upscaling its investment in risk reduction, focusing on the most vulnerable communities first.[94]

9.107As identified in Chapter 8, Latrobe Council conveyed their experience of rebuilding infrastructure without being able to make changes to account for high flood risk because of cost, with the City of Greater Bendigo also arguing that public funds should be spent on ‘building back better’:

It is a waste of public money to continue to rebuild to inadequate standards when investing in ‘build back better’ would make roads and other infrastructure far more resilient to future damage and save massive amounts of money in the longer term. The City asks that the federal government continue to discuss this issue with the Victorian government with a view to setting up a similar Betterment Fund for Victoria.[95]

9.108Advance Cairns believed building more resilient infrastructure would require significant investment by governments:

…it actually requires a significant investment in building road networks, bridges and infrastructure that can withstand what we know are going to be more extreme weather events, more often.[96]

9.109IAG similarly told the Committee:

All levels of government – led by the Federal Government – must significantly boost investment in mitigation infrastructure (such as levees and barrages) that will protect assets like homes and businesses and lower the cost of risk. The Federal Government’s initiatives in the Disaster Ready Fund and the Hazards Insurance Partnership are important first steps.[97]

9.110Whether insurers have a presence in a local market can be impacted significantly by community level flood mitigation. If measures are determined to materially reduce the flood risk for households and businesses located in the protected zone, insurers may be more willing to re-enter the local market to offer flood cover and at a lower premium to reflect the new risk level. Throughout the inquiry, the levy placed in Roma in 2012 was often quoted as an example of insurers leaving and re-entering the market once the levy was built.

If you take Roma as the example, we had three 1-in-100-year events in Roma in three years, 2010, 2011 and 2012. That cost Suncorp $150 million. We took a decision at the time that we would cease writing home insurance premiums there until such time as the authorities invested in a levee. That was invested in. The minute the concrete started being poured, we reduced the premiums and the premiums have gone down by about 70 per cent.[98]

9.111However, some councils have also acknowledged that due to the significant flood risks for certain areas, public mitigation works may have a limited impact on premiums. For example, the Hawkesbury City Council noted:

Council has implemented a suite of initiatives that aim to reduce the flood risk in Hawkesbury, including reviewing and renewing planning provisions within a (draft) amended Local Environmental Plan, development of a Flood Policy and delivery of community engagement and education initiatives related to flood preparedness. It is acknowledged that these initiatives in isolation cannot entirely address the significant and well documented risk that exists in the Hawkesbury, any impact that these mitigation measures may have to reduce flood risk do not reduce the cost of premiums.[99]

9.112Publicly funded community level mitigation measures will always be subject to overarching budget constraints. While the increase in funding by the Australian government to at least $200 million per year is welcome, it is also worth exploring the possibility of government partnering with the private sector.

9.113The Australian Sustainable Finance Institute has advocated for public-private partnerships (PPPs) as a delivery model for community resilience investments. This could involve government and the private sector co-investing in new or upgraded infrastructure. As part of such a PPP, government would need to facilitate revenue streams for the private investor. This could take a number of forms, but would need to leave residential and/or business/community stakeholders better off.[100]

9.114Similarly, the Actuaries Institute recommended the adoption of resilience lending by Australian banks, including through:

• the securitisation of resilience lending into mortgage-backed securities (for example, climate adaptation bonds).
• the development by government of climate adaption taxonomies to facilitate investment.[101]

Public and private collaboration in funding mitigation

9.115While governments have increased spending on mitigation and preparedness – and should do even more – there are limits to how much governments will be able to invest. That is why all governments should explore options to partner with the private sector. This could substantially leverage public sector balance sheets and spending.

9.116The Actuaries Institute, in its 2024 Home Insurance Affordability and Home Loans at Risk Report (August 2024) argued that Australian, state and territory governments should consider partnering with the private sector in exploring innovative financing mechanisms. One example cited was sustainable finance instruments ‘similar to the opportunity presented to lenders through climate adaptation bonds for resilience lending’.[102] Such a framework could include some of the features of the Green Bonds already implemented by the Australian and some state governments. Such mechanisms could potentially fund both community and household resilience projects. As the report noted, ‘resilience measures can reduce risk which, all else being equal, enable premium reductions and thereby improve insurance affordability’.[103]

9.117In its report Enabling Private Investment in Climate Adaptation and Resilience, the World Bank explored barriers to private sector investment in resilience measures. The key barriers identified were: (i) a lack of high-quality country-level risk and vulnerability data; (ii) limited clarity on public sector investment gaps; and (iii) low perceived returns on investment.[104] The report identified strategies for overcoming each of these gaps. It is critical that the right incentives are put in place, including in some cases the identification of reliable income streams to underpin the investment. While the World Bank report focused on climate change resilience, very similar challenges (and opportunities) present in relation to natural disaster resilience, particularly given that the increasing frequency and severity of some disasters (including flood) is so closely linked to climate change. Many of the strategies identified in the World Bank report (for example, better quality data, clearer identification of investment gaps)[105] are currently being identified and addressed by the HIP.

Building standards

9.118The Committee heard that there is some work underway by the Australian Building Codes Board (ABCB) and Standards Australia to improve construction regulation with respect to floods.

9.119The Australian construction industry is regulated by the National Construction Code (NCC), a code which is produced and maintained by the ABCB. The ABCB is a joint initiative of the Commonwealth, state and territory governments, together with the building and plumbing industry.

9.120In its evidence to the inquiry, the ABCB noted the Code is performance based, in that the ABCB set minimum standards to a minimum necessary level of performance for safety, health, amenity, accessibility and sustainability for new buildings.[106]

9.121In June 2024 the Australian Government announced that Building Ministers had agreed to add climate resilience as an objective of the ABCB. This will allow the ABCB to consider future standards which will ensure buildings can better withstand more extreme weather.[107] Climate resilience will become the sixth objective of the ABCB from 1 July 2025.[108]

9.122Standards Australia told the Committee that there is also a project underway for the adoption of ANSI/IICRC S500 as a standard on professional water damage restoration, as well as ANSI/IICRC S520 as a standard on professional mould remediation.[109] ANSI/IICRC S500 is expected to solidify best practices for responding to water damage incidents, including assessment, extraction, drying and restoration in the Australian construction industry.[110] ANSI/IICRC S520 proposes to fill a gap allowing a wide array of standards, processes and systems to be followed.[111]

9.123The Committee heard repeated evidence from stakeholders that building standards need to be improved.

9.124The ICA told the Committee that building standards do not account for current or future flood risk at all:

Currently, minimum building codes in Australia are designed to preserve life in a catastrophic event, but not with the goal of preserving the property itself. As a result, homes are not built to withstand the extreme weather events of today, let alone the future. Importantly, when it comes to floods, building standards do not consider resilience at all.[112]

9.125This notion was supported by the ABCB:

In simple terms, the planning system determines where you can build and the National Construction Code determines what you can build… In a flood designated area, we have provisions that can support building in a flood affected area, but the decision to determine what is a flood affected area is for the planning system…The objectives of the code as they stand today are focused primarily around life protection and human safety and less so around protecting the building for its own place. So, in a flood we expect that a building in a flood affected area, if built to our standards today, would be structurally sound during the flood event so that it protects the life of people who might be caught in that building. However, it won't necessarily mean the building can be occupied straight after the flood.[113]

9.126Several stakeholders believed a flood rating system similar to the Bushfire Attack Level (BAL) should be introduced. The BAL is an Australian Government standard that measures the potential exposure of a home to bushfire which determines both the construction methods and materials that must be used in bushfire prone areas.

9.127The Rochester Community Recovery Committee argued:

The option may be…that we can adopt a similar flood system like the BAL systems, the bushfire attack level systems, and have a structured and tiered system so that, if you are going to live in some of these threat areas, there are different requirements around housing. Simply building up above a flood height is the optimal thing, and that minimises risk to not only property but also lives, but then there might be other requirements around housing, such as open-style development should not be located in areas susceptible to flood.[114]

9.128A recent Centre for International Economics report released by the ICA found the three major forms of natural disasters (bushfire, cyclone and flood) created costs of around $4 billion per year. This included insured losses, uninsured losses, under-insured losses, mental health impacts, costs associated with loss of housing and employment impacts. The totals for each type of natural disaster were $2 billion for cyclones, $1.475 billion for floods, and $486 million for bushfires. The report also found that the costs associated with these natural disasters is likely to increase significantly over time[115]

9.129In examining the economic viability of different mitigation and strengthening options for flood, the key findings of the report were that:

• Floor elevation appears the more favourable option than non-structural options due to relatively cheaper cost and higher effectiveness.
• The results are highly dependent on the frequency and intensity of flood events. For example:

• the elevation option becomes economically viable when AEP is greater than 2.1 per cent under the current climate scenario or 1.9 per cent,
• non-structural options would require the AEP being greater than 9.8 per cent if they can make a high impact (reduction of loss by 50 per cent) or greater than 16.1 per cent if they make a low impact (reduction of loss by 25 per cent).

• Flood risk mitigation requires a combination of effective land use planning regimes and robust building standards.
• There are instances where existing land use planning frameworks fail to adequately address the natural hazard risks faced by the built environment and communities.
• This inadequacy underscores the significance of risk-resilient building standards in mitigating costs associated with extreme weather events.[116]
  130. Local councils that appeared during the inquiry told the Committee they had not approved any new developments in areas with a high flood risk within their Local Government Area (LGA) in recent years.[117]
  131. Despite this claim, there is evidence of a number of developments having been approved recently where a number of properties are at a 1-in-100 year risk of flooding or higher. Recent examples include:
• the approval of 69 lots at Bulimba, in Brisbane.[118]
• the approval for 68 lots at a site in Richmond Valley that was significantly flooded in 2022.[119]
• a development in Hope Island (Qld) with a 1 per cent AEP depth of 60cm - 1.2m.
• multi-residential projects built on the Sunshine Coast and Gold Coast in 2019.
• Idalia in Townsville has seen significant expansion in areas affected by damaging floods in 2019 and 2024, including a mix of residential properties and further approval for the development of a new hotel.[120]
• the current construction of about 1,300 houses on the NSW Mid-North Coast in an area susceptible to flooding during heavy rain and storm events, with the possibility that 1,000 houses could be inundated above floor level during a 1 percent AEP event.
  132. In addition, it is important that an audit be undertaken of property that has been approved but not yet developed. This could represent thousands of individual properties when fully sub-divided.
  133. Councils also told the Committee that property owners were adding new structures or changes to existing structures in flood prone areas without council approval, noting it is both common and challenging for councils to regulate due to their limited resources. For example, Mr Joiner stated:

We don't, as a rule, approve developments within flood prone areas; however, a lot of people within the shire just go ahead and build anyway. We either get retrospective requests for approval, or they just go ahead without a building approval and then, when something happens, we're expected to go in and help them. Just as a reminder, our shire is as big as if not bigger than Victoria. We're quite a financially stressed council, so we don't have resources to go around and do a lot of the work that we need to do to ensure compliance. We've got examples all over the shire where people just go and do what they want to do.[121]

9.134The Australian Consumers Insurance Lobby noted government has a critical role to play to ensure regulations restrict development on floodplains and support the implementation and enforcement of zoning regulations that designate floodplains as off-limits for development.[122]

9.135Youi recommended governments disincentivise new developments through the implementation of cost clawback mechanisms (contractual mechanisms that allow entities, usually sellers or lenders, to recover money if certain conditions of the contract are not met). It believed clawbacks should operate over parties responsible for constructing and approving developments on high-risk land, with the clawback being triggered in the event of damage to the developed property (of a certain severity) having been caused by the high-risk natural peril event in question occurring after development completion.[123]

The role of banks in discouraging development

9.136During the inquiry, the Committee was also interested to find out to what extent banks were aware of the risks they were assuming by offering mortgages for homes located in flood prone areas. While it is standard practice for lenders to require borrowers to maintain home insurance during the course of the loan, Financial Counselling Australia noted that, in practice, it was possible to take out a mortgage without consumers providing evidence of ongoing appropriate insurance to the bank, stating:

We've been calling, with the ABA [Australian Banking Association] now for some time, for the banks to actually require evidence every year of a consumer's ongoing building insurance…the conversation becomes where and how should Australians live and to what extent, based on that, do you take on that risk…But it's about also the question of what is appropriate and adequate insurance. When you've got insurance premiums now for flood cover in the Northern Rivers that are anywhere between $15,000 and $25,000 a year, we've got a big problem. That's why I think some tradies are maybe taking on those risks. But I think there can never be enough forewarning, I suppose, about those risks.[124]

9.137However, as the Australian Banking Association (ABA) noted in their submission, under APRA requirements APS and APG 220 – Credit Risk Management (and as part of general mortgage terms and conditions for most banks), customers must hold an insurance policy to take out a mortgage over a property. The ABA submitted:

Insurance is checked by banks as part of the mortgage origination and verification process before settlement over a property occurs. Banks also have a range of processes they may carry out where they identify that a borrower no longer holds insurance or has removed a component of their insurance policy relevant to their property (such as the flood component of their policy).[125]

9.138APS and APG 220 are intended to require the pooling of perils risk by the household and to leave the bank with the credit risk (which it is well placed to assess and manage).

9.139In its 2024 home insurance affordability report, the Actuaries Institute estimated that 5 per cent of households in Australia with home loans are experiencing extreme home insurance affordability pressures.[126] The Institute estimated that these households had around $57 billion in outstanding loan balances as at March 2024.[127] The Institute estimated that this represented 3 per cent of total home loans. The most affected areas are the northern rivers in NSW, regional Queensland and regional NSW.

9.140Even where properties are insured, under-insurance may be an issue, particularly for households facing high premiums.

9.141This is broadly consistent with analysis by Australia’s major banks of their exposure to climate change and major perils. For example, in 2023, the Commonwealth Bank estimated 39,000 properties worth $17 billion were at a “severe physical risk” of floods along with $11 billion to cyclones and $2 billion to bushfire. Most of the properties at risk of flood were in regional NSW and Queensland. Overall, 4.6 per cent of the bank’s home loan stock was exposed to a high risk of one or more of these perils.[128]

9.142Banks typically verify insurance at the point of loan origination but do not monitor ongoing compliance. In part, this reflects the compliance costs of ongoing monitoring. To date, banks have adopted a pragmatic approach to the emerging risks in relation to insurance affordability, which the Committee believes is appropriate. Rather than exploring foreclosure options, banks are typically engaging with consumers through vulnerable customer frameworks. The Committee also understands that banks are reviewing their exposure to risk at a systemic level rather than placing pressure on individual households.

9.143If government is to undertake the affordability and risk reduction strategies recommended in this report, then it should be possible for banks to manage this risk, so long as new properties are not added to the stock of properties that struggle to afford insurance.

9.144Some stakeholders believed banks should be taking steps to become informed about potential flood risks before offering loans to developers, or for funding renovations which may not meet building approvals, and that information flows should be advanced to facilitate greater access by banks to relevant information for making loan decisions. For example, Youi suggested more should be done to ensure banks have access to and use flood mapping to avoid financing any new development of property in high-risk areas.[129]

9.145The Committee for Sydney agreed that banks and other lending institutions should be giving more consideration to whether it should be lending to developers for certain projects, stating:

I think it's important that when we're thinking about financial services we don't just stop at the insurers, because while the insurance is a risk transfer it's also a pathway to mortgages, effectively. We've had these conversations with banks and financial services sectors. It's understanding that their decision-making around lending to a developer who's going to own a particular piece of property for three or five years, while they go through that development process, is a different conversation from one with a household that's proposing to take on a 30-year mortgage, because the risk profile changes. So, again, the insurer doesn't own the asset; the insurer's providing a risk transfer opportunity. The bank holds that asset against that risk.[130]

9.146There is a range of options for banks in relation to households who have taken out mortgages and find themselves struggling to afford insurance, such as:

• resilience loans to enable households to invest in the resilience of their properties. This may make insurance affordable going forward. This could be undertaken in conjunction with the Resilient Building Council’s rating system (as supported by the HIP).
• continue to work with government on more transparent and rigorous reporting of climate change and related risks, including through the Australian Sustainability Reporting Standards (ASRS).
• in conjunction with government and regulators, examining the role that banks can play in systemic responses to new developments in high-risk areas. This could include the capital treatment of such loans or an agreement that such loans should not be made.

Insurer recognition of policyholders’ ‘building back better’

9.147Once a flood occurs, traditionally the objective of insurance has been to put the customer back in the same position they were in prior to the loss. Generally, policyholders that have a home insurance policy with flood cover are entitled to have the damage to the building repaired or replaced to the same condition it was in prior to it being damaged (or be cash settled).[131] Properties are required by law to be rebuilt to current building standards, however insurers are not required to rebuild houses to include modifications that make the building more resilient to floods.

9.148Stakeholders believed insurers should change their ‘like for like’ policy position to a ‘build back better’ position to support communities to become more resilient.[132]This was reflected in recommendations 1.4, 1.5, 7.1 and 7.2 of the recently released report “Unsettled: Climate Risk and Cash Settlements in Home Insurance” produced by Financial Counselling Victoria.[133]

9.149Some stakeholders, including insurers, voiced concern about the impact it may have on insurance affordability if insurers took an approach where they paid out more to rebuild properties using costlier, more resilient materials, particularly for properties that may be repeatedly affected by floods. Insurers believed the primary source of funding for building greater household level resilience should be drawn from government programs, with the funds made available for use when conducting repairs as part of a flood or storm claim.

9.150Both the NSW and Queensland governments provided recovery grants to households through their Resilient Homes Program and Resilient Homes Fund respectively. However, as covered in Chapter 8, some stakeholders reported that it was too challenging trying to get the grant funding application to track close enough to the insurance claim’s timelines for the funds to be used as part of the insurer’s rebuild or repair of their home. The timing inconsistency also delayed the rebuild process for some stakeholders. For example, IAG reported that in some instances, flood impacted customers were hesitant to start the repair process until they had the outcome from these programs.[134]

9.151IAG told the Committee that there is often a willingness by both the policyholder and the insurer to build back better after an event, but without supplementary government funding readily available, policyholders may have no choice but to start rebuilding with their insurer. It would like to see governments across all states and territories have pre-agreed processes in place (a ‘Build Back Better Blueprint’), ready to deploy at the time of an event should the government determine that an event triggers a grants program.[135]

9.152Dr Helen Haines MP believed governments and insurers should work together to provide more opportunities for policyholders to rebuild their properties to be more resilient to flood:

Insurers should work with governments to incentivise impacted policyholders to use insurance pay outs to build back better – where it is appropriate to build back. Building back better means accounting for changing risks and increasing resilience to future natural disasters. The committee should explore the appropriate role of government in this space.[136]

9.153An alternative approach, that will not affect affordability, would be to allow greater flexibility in how a given sum insured amount is spent. With more flexibility, a given total amount could be spent on like-for-like or on an alternative, more resilient building. For example, it might make sense to rebuild a house with a smaller footprint but more resilient (for example, raised) for the same sum. That will benefit both the householder and the insurer going forward.

9.154Some insurers told the Committee they had moved to work more closely with the resilient homes programs during the response to the 2022 major floods, to improve outcomes for policyholders. For example, RACQ told the Committee that it had ‘partnered with the Queensland Government to design and implement the jointly funded Resilient Homes Fund to build back better and repair homes to a standard that reduces the impact of future flooding’. RACQ reported at least 20 of its policyholders’ homes participated in this program.[137]

9.155Some insurers noted there are other avenues through which insurers could implement build back better policies as a priority. Suncorp told the Committee they provide policyholders with an optional benefit designed to cover the costs of building enhancements during the repair of a damaged property, which policyholders can purchase as part of their policy:

Suncorp also offers Build it Back Better (BiBB) an additional benefit available to eligible Suncorp branded home insurance customers. This benefit is designed to cover costs associated with the purchase and installation of resiliency building enhancements that reduce the risk of damage during future weather events, for example replacing carpet with tiles, installing solid hardwood doors, and raising external services around the home such as air conditioning units.[138]

9.156A&G also believed there were other changes that could be made to integrate a build back better approach when scoping repair work as part of a claim:

Often the way it pans out in the claims process is our assessors would visit—I'm talking about large-scale repairs here—the building. We would get a builder's estimate of cost. The customer would probably do the same. Often a customer might brief a builder differently in terms of the scope they want to rebuild it to. We would compare that. The piece that we don't do consistently is to say, 'What component of that scope difference is a better build or a resilient build versus a customer scope requirement or a functional requirement?'[139]

9.157As outlined later in this chapter, the Committee has made recommendations to improve recovery programs to enable the dual processes of grant applications and claims processes to be more synchronised and not hold up the rebuild of homes after a significant flood event.

Premiums need to better reflect household risk mitigation

9.158A significant number of stakeholders told the Committee that insurers need to better reflect household risk mitigation in the premiums offered to consumers. For example, in its joint submission, Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre, and Westjustice submitted that insurers should be required to consider relevant property-level mitigation measures in any new or renewing insurance policy, and to demonstrate how those measures have been reasonably reflected in the proposed premium.[140] The consumer groups believed there needs to be a genuine risk mitigation partnership between insurers and the insured, stating:

If society is to benefit from the mitigation of controllable risks, there needs to be a genuine risk mitigation partnership between insurers and insureds. Consumers must know what the risks are to be able to act on them, and should be provided with appropriately transparent pricing signals – that indicate the existence of risks with price increases and the mitigation of risks with price decreases.[141]

9.159The Royal Commission into National Natural Disaster Arrangements identified that a limitation of available data to insurers saw them lacking in their ability to recognise where risk mitigation has been undertaken, and for consumers to know which mitigation actions will be recognised.[142]

9.160Insurers tend to be responsive to large-scale, community level risk mitigation activities, such as levees and creek diversions.[143] However, individual-level household mitigation activities often go unrecognised.[144] In response to the Committee’s survey, 77 per cent of respondents said that mitigation measures they made on their property did not reduce their flood premium.[145]

9.161Some stakeholders cited deficiencies in the data collected by insurers that is then used to calculate premiums, indicating that the capture of mitigation work completed by policyholders would be challenging for insurers. For example, the Central Coast Council spoke about insurers’ collection of data on floor heights:

…insurers quite often don't have an understanding of what the actual floor level of the building is…. insurers are able to quickly figure out, assuming the centroid of the property from the national address database: 'At this point here, what are all the flood levels that apply? What's the ground level?' But they don't know what the floor level is, so they generally make an assumption… That's where some of these very large premiums come in, because they're assuming something that is very different to where the floor level actually is... But they might also misunderstand where the house is on the actual property. If it's a large parcel of land, they'll just say, 'Well, let's assume that the property's in the middle.' But the house might actually be over here… so they end up with a premium of $30,000 or something…. most of the insurers don't have the manpower to go and look into each of these policies. They'll just run them off automatically, and, if people will pay them, then great; if not, then they don't have the resources to be able to negotiate on an individual residential policy.[146]

9.162The Committee understands that at least some insurers have recently begun to more accurately plot building location on each property (rather than using the centroid as the default), although this is not universal practice yet.

9.163Other stakeholders cited limited opportunities for policyholders to share maintenance and risk mitigation work with their insurer to the disappointment of policyholders seeking to lower their premiums. One policyholder told the Committee:

Homeowners in bushfire-prone regions can not only obtain coverage but also benefit from reduced premiums through proactive fire mitigation measures. Regrettably, this privilege is not extended to those labelled as flood prone. Residents like myself are denied the opportunity to showcase our individual flood mitigation plans. We are unable to demonstrate proactive measures such as the ability to relocate internal contents to higher floors or even the ability to completely remove vulnerable contents off site altogether; that the external areas of our properties are well maintained, thus ensuring that debris doesn't cause damage; or that decking, fencing and retaining walls are well-maintained and structurally sound.[147]

9.164Insurers also spoke of the limited data for them to verify that mitigations have been undertaken, or to quantify the effectiveness of those mitigations in reducing flood risk.[148] IAG believed the questions insurers asked of policyholders about the condition of their property were ‘not deep enough’:

There's a communication exercise required. There's probably a greater understanding from householders around risks that actually do exist in that property, and a better way to communicate with your provider. These issues turn up, unfortunately, at the time of [a] claim.[149]

9.165Allianz also noted data limitations are the biggest obstacle for insurers in taking into consideration mitigation efforts to reduce risks.[150] Allianz explained their pricing engine cannot currently price at a more granular level, for example, by taking into consideration the exact height of the floor level of raised homes.[151]

9.166Several local councils noted they had observed insurers not reducing premiums in response to policyholders’ mitigation work on their properties, with Lismore City Council noting that communities are not incentivised to improve their property’s resilience.[152] Dr Haines supported action being taken by insurers to improve the incorporation of mitigation measures to provide policyholders with the incentive to investigate and undertake mitigation work.[153]

9.167Insurers told the Committee that the insurance industry and governments need to work together to improve data availability for insurers to be able to better detect household level risk mitigation works and evaluate the impact of different measures on the flood risk to the property so that insurers can feed that information through to premium calculations.[154] Without verifiable information about the risk mitigation activities undertaken, insurers cannot lower premiums without potentially under-pricing the risk. Insurers’ requirements for verifiable data capture on household-level mitigation work was described by IAG:

Currently, property resilience information is not systematically captured in any authoritative central database. It is typically the responsibility of the homeowner to capture property resilience information, which can often be lost when property ownership changes. This information is also not often available to tenants.

Only features supported by a centralised resilient building standard would be captured, for example features identified through the Hazard Insurance Partnership Mitigation Working Group as likely to result in reduced insurance claim costs (this could also include national restoration standards so we can restore rather than replace).[155]

9.168Youi agreed that household level mitigation and resilience measures could lead to lower premiums by making credible and certified information about such measures available to insurers in a standardised format at the address level, arguing for ‘a centrally stored database and/or API service containing a set of contemporary resilience scores, by peril, for individual addresses in Australia’, while also noting that the primary challenge would be in populating and certifying the "national standard format" for such resilience scores, stating:

Robust certification and ratification standards would be crucial to the credibility of such a centrally stored national database and requisite for utilisation by insurers.[156]

9.169NEMA told the Committee they are working with insurers as they implement the hazard risk Mitigation Measures Knowledge Base to translate consumer actions to mitigate risk at the household level into premium reductions:

…that link to insurance and premiums is really important. We're not there yet with this early stage of the database. At this point, we've just been focused on collating what those actions are that households can take, and then getting it into a format where that can be provided back to communities—to people… we're actually working quite closely with insurers on basically translating household actions into premium reductions, and the recognition of those by the insurers.[157]

9.170NEMA noted that some insurers have undertaken pilots and programs to work directly with households to reduce their risk and have the mitigation activity reflected in their insurance premium.[158] NEMA also undertook a pilot program bringing together insurers’ and other sources of flood hazard data to assess the impact of mitigation projects on insurance, specifically in the Bundaberg region.[159] NEMA told the Committee:

That pilot showed the limitations of data availability and accessibility information and really demonstrated the value it would give decision-makers if we had more current and mature flood and property data to inform the risk assessments that insurers in turn need. So it had some learnings for government as well as highlighting what insurers would need to help them influence their premiums.[160]

9.171NEMA encouraged the industry to expand on these programs and seek innovative business solutions to price mitigation ‘discounts’ into premiums.[161]

9.172Some insurers have already begun testing and implementing resilience-based pricing measures to reflect reduction actions taken by policyholders. A&G have added new questions going to the elevation of homes which is being used to calculate and reduce the Cyclone Reinsurance Pool flood component of the customer’s premium, where applicable.[162]

9.173IAG told the Committee that some of its brands have implemented appropriate measures, and it planned to expand to other portfolios. IAG submitted that these measures currently include adjustments to flood premiums to reflect house-raising or elevated floor levels and adjustments to cyclone premiums to reflect retrofit measures in Queensland, Western Australia and the Northern Territory, for example, roof tie-downs, roof replacements and window protection. At the time of making their submission, IAG was also considering adjustments to flood premiums to reflect household retrofitting undertaken as part of a Federal or State Government supported scheme and adjustments to bushfire premiums to reflect household bushfire resilience measures.[163]

9.174IAG also told the Committee that the recently introduced bushfire star rating methodology underpinning the Resilient Building Council’s Disaster Resilience Rating standard and Bushfire Resilience Rating Home Assessment app, launched in October 2023 could also help improve premium pricing for consumers:

We are reviewing the standards as they have the potential to be integrated with our centralised peril pricing engine and subsequently through to our customer pricing systems.[164]

Buyback schemes

9.175Property buyback programs allow property owners to voluntarily sell their property to the government. Programs are typically made available by government when there is extreme risk to homeowners from natural disaster events, particularly floods, where retrofits may not effectively mitigate risk and where there is not a realistic prospect of community level mitigation. This prevents homeowners from being trapped in high-risk locations because they cannot afford to build a safer structure or move to a safer location. It also prevents the turnover of the property to new, potentially uninformed owners, who then need to navigate the same issues and may also lower costs for clean-up of debris, emergency services response, in addition to rebuild costs over time. Buybacks can also help with flood mitigation, for example, if properties on a flood plain are returned to a natural state or replaced with flood mitigation infrastructure.

9.176Throughout the inquiry, most stakeholders signalled strong support for governments to make voluntary buyback schemes available to all households that were located in areas with a high flood risk. As outlined below, stakeholders located in Queensland and NSW were particularly vocal about the desire for an expansion of the existing Resilient Homes Fund and the Resilient Homes Program, which has restricted eligibility for properties located in South-East Queensland and the Northern Rivers region respectively. There were also calls for the establishment of similar buyback schemes in other states and territories, particularly for Victoria.

9.177The Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice considered the Queensland’s Resilient Homes Fund an effective example of governments supporting people in extremely exposed communities and advocated for the model to be expanded across Australia into communities which are exposed to high risk.[165] Other community and private organisations agreed buyback schemes should be extended to all homes where there is no other effective way of protecting against the risk, including Legal Aid NSW, Centacare Far North Queensland, Port Douglas Community Services Network and Mossman Support Services, and JLT Public Sector.[166]

9.178The Greater Shepparton City Council believed a long-term plan to retire vulnerable properties should be contemplated and advocated for harmonisation of flood buyback schemes across Australia.

We don't have such a scheme in Victoria at the moment. In that regard we're lagging well behind New South Wales and Queensland… It's something that we've advocated for in Greater Shepparton on the basis that in order to really meaningfully reduce the risk to individual residents there is a need to get some of our most vulnerable properties out of the floodplain.[167]

9.179The City of Launceston told the Committee that it was about to commence its strategy to deal with floods going forward, which may include voluntary or mandatory retreat however, it was a difficult discussion to have with the community and buyback programs could provide some benefit.[168]

9.180Townsville City Council advocated for the Voluntary Buy-Back Program to be adopted nationally,[169] while the Hawkesbury City Council supported the expansion of buyback schemes to at least the Hawkesbury region noting the repeated and significant flooding in the region during 2022. The Council also believed it would be able to use land acquired through buybacks for community benefit.[170]

9.181Every large insurer that engaged with the inquiry told the Committee that buyback programs were needed for properties in areas with very high flood risk,[171] with several strongly supporting permanent programs for households to access.

9.182The ICA told the Committee that all governments should establish permanent programs for buybacks and home-raising to move people out of harm’s way before disasters occur, reducing recovery costs for governments and affected communities.[172]

9.183A&G believed governments should be taking a preventative approach by identifying homes in extreme or very high-risk areas across Australia and providing opportunities for buybacks and relocations.[173] IAG, Youi and Allianz were similarly supportive,[174] with Allianz submitting that delayed decision-making in relation to buyback arrangements has led to sub-optimal decision-making by policyholders:

State government land buy-back schemes initiated following the 2022 floods recognise that for a number of communities with extreme exposure to flood risk, mitigation is impractical, financially unviable or simply not possible in order to materially reduce flood risk. While these government assistance programs are very welcome, our experience with the 2022 floods is that government decisions to fund buy-backs and land swap arrangements should be part of pre-catastrophe planning and a part of ongoing State-wide programs. Delayed decision making in relation to land-swaps and buy-back arrangements have led to suboptimal decision-making by customers when they are most vulnerable, such as rebuilding in existing high risk flood areas.[175]

9.184QBE believed permanent programs would also help reduce confusion around eligibility which contributes to uncertainty and delay.[176]

9.185The Committee for Sydney highlighted the challenges in getting take up of buyback schemes following a single flood event, noting ‘the opportunity has to coincide with the community reaching a risk tolerance or being overcome by the risk tolerance that they're not prepared to continue’. The Committee for Sydney supported governments adopting a long-term approach to buybacks, including identifying high-risk areas to target offers for buybacks after flood events occur.[177]

9.186The Committee for Sydney also believed buybacks were important for reducing ongoing costs to the community and to the taxpayer of people remaining in the cycle of disaster.[178]

9.187Buyback programs can also address the cycle of residents selling to new owners, who are uninformed about the risks associated with a property. Several people told the Committee about homes being advertised to sell after being repaired following the 2022 floods without clear disclosure of future flood risk. It was argued that homes in high-risk areas should not be eligible for sale on the private market and should instead be acquired by governments when owners want to sell.[179]

9.188Some stakeholders argued that buybacks were not a practical solution for their town or city.[180] They supported alternative approaches to reducing flood risk in their areas, including improvements to building standards so that after future floods, homes can be rebuilt with more resilient materials. There were also concerns raised about perceived lack of support provided to communities where buybacks were common following the major floods, including challenges around the viability of the township once local businesses shut down.

9.189While the Committee believes that buyback programs should play a key role in any suite of policy responses to heightened underlying flood risk, it is important to note that it is an expensive strategy. The combined cost of the resilience programs in South-East Queensland and the northern rivers region of NSW ended up costing around $1.5 billion. Of the $741 million provided for Queensland’s Resilient Homes Fund, $500 million went towards the Voluntary Home Buy-Back Program.[181] As of 24 June 2024, the Queensland Reconstruction Authority had reported 685 buyback offers had been accepted of 859 offers made.[182]

9.190It is important to acknowledge that, even if buyback programs are extended to other states and territories, it is likely to require a long-term commitment at the national, state and territory level in order to make a significant contribution to aggregate risk reduction.

Flood Reinsurance Pool

9.191Several stakeholders raised the possibility of the Australian Government establishing a public reinsurance pool to improve affordability of flood insurance policies for households and businesses at a higher risk of floods.

9.192Many stakeholders pointed to the establishment of the Cyclone Reinsurance Pool (Cyclone Pool) as a precedent for government intervention to improve affordability for disaster-related insurance, noting that many of the same issues experienced by households, stratas and businesses around the lack of available and affordable insurance for cyclone and cyclone-related flood damage, are also being experienced for flood.

The Cyclone Reinsurance Pool

9.193The Australian Reinsurance Pool Corporation (ARPC) commenced operations in 2022. It seeks to reduce the cost of reinsurance for insurers to enable delivery of lower premiums to their customers and encourage greater participation by insurers in the northern Australian insurance market, to improve total insurance coverage and competition in the region.[183]

9.194All large insurers with eligible policies have joined the Cyclone Pool (smaller insurers must join by 31December 2024) and transferred their portfolio to the ARPC.[184] The ACCC, which has been directed to monitor the prices, costs and profits of insurers for eligible policies with the introduction of the Cyclone Pool, indicated in its second monitoring report covering the year 2022-23 that while no significant price effects had flowed through to consumers, insurance prices in northern Australia had increased by less than the rest of Australia. It was explained that the Pool is still in transition, with insurers only beginning to join the pool at the start of 2023 and most joining around or after July 2023. This timing means the early effects of the pool were unlikely to have extended to most consumers, or be reflected in the data for the 2022-23 period.

9.195When asked for an update on the effectiveness of the Cyclone Pool in reducing premiums, representatives from Treasury indicated it was still in the ‘too early to say definitively' stage, but that the evidence suggests the costs of premiums collected through the Cyclone Pool is likely lower than what the private market was charging prior to its introduction. However, one of the challenges with assessing the effectiveness of the Cyclone Pool is that it is difficult to determine how factors such as rising building costs would have impacted premiums without it being in place, meaning that the absence of a material reduction in premiums from before the Cyclone Pool was operational (a common experience recounted to the Committee) doesn’t necessarily indicate the Cyclone Pool isn’t reducing premiums for covered policies.[185]

9.196The ACCC is expected to publish its third-monitoring report in December 2024, which will provide insights into the impact of the Cyclone Pool and savings for consumers for the 2023-24 period. The Cyclone Pool will also undergo a comprehensive review in 2025, three years after its commencement.[186]

Stakeholder views on a flood reinsurance pool

9.197While acknowledging that the Cyclone Pool is both relatively new and a first of its kind to be adopted in Australia (other countries, including the US and UK have implemented government-backed flood reinsurance schemes), many stakeholders considered the significant affordability challenges around flood insurance since the 2022 major floods call for a similar response.

9.198Many stakeholders, including some insurers, either supported a government-backed reinsurance pool, whether this meant expanding the Cyclone Pool or establishing a new Pool, or supported governments undertaking further research to better understand how a flood pool could improve affordability.

9.199Allianz recommended a feasibility study be undertaken on the best mechanism to create a national flood reinsurance facility, noting schemes can take different forms, particularly in relation to their funding. Allianz noted that some countries have adopted insurance industry-administered pools such as the UK’s Flood Re, which does not require government subsidies. Instead of government subsidies, Flood Re is funded by contributions from policyholders without any flood risk. This cross-subsidisation comes with some trade-offs in that it may make insurance less attractive more generally. Alternatively, the Cyclone Pool could be expanded to include cover for all high-risk flood nationally.[187]

9.200The following consumer groups and councils also supported further investigation on the feasibility of a reinsurance pool for flood.

• the Australian Insurance Consumers Lobby proposed the Australian Government commission an inquiry into the feasibility of establishing a Federal Flood Reinsurance Pool to address the unique challenges posed by floods.[188]
• Disaster Legal Help Victoria believed the Australian Government should seriously consider government-supported reinsurance pools like the Cyclone Pool and/or a well-designed discount scheme as laid out in the Natural Disaster Insurance Review (NDIR) 2011 report.[189] It also proposed bringing forward the review of the Cyclone Pool to provide earlier understanding of the benefits and impacts of the pool so the benefits can be extrapolated to other extreme weather events including floods.[190]
• Ballina Shire Council recommended governments investigate options to provide a reinsurance scheme for areas that the insurance market is no longer able to cover at affordable prices.[191]
• Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice urged the inquiry to ‘consider whether measures, such as widespread subsidies or an expanded government reinsurance pool, for example to flood risk, is necessary to improve insurance affordability’.[192]
• Legal Aid Queensland recommended the government consider subsidies through a pool to reduce premiums enough to make them affordable.[193]
  201. Hollard noted that while they were open to the concept of a flood reinsurance pool, this was only if it applied to existing structures without eligibility for new builds. Hollard argued:

…we agree that a flood pool is a potential solution to enable more affordable home insurance to cover existing properties in high flood-risk areas. However, it cannot extend to cover future developments in such areas…[194]

9.202Hollard also told the Committee that if a flood reinsurance pool were introduced, it would allow them to expand their coverage for non-flood related perils for properties with high flood risk.

If we can quarantine these 230,000 properties around the country and provide protection for those, not extending it to properties that are yet to be developed, Hollard would be looking to re-enter that market to cover all of the other perils very quickly.[195]

9.203Allianz held similar views, stating:

…containing the problem to what we have today and providing a solution for the current properties needs to be the priority. But equally, I think, it sends a very strong signal to all parts of the value chain—whether it be the financiers, the property developers, local council, state council or land environment council—that anything that's developed in those areas outside of that pool will not have access to it.[196]

9.204Mr John Trowbridge, who chaired the NDIR, raised the possibility that insurers could establish a reinsurance arrangement in the form of a funding pool that operates without direct government involvement whereby insurers hold a first loss on every claim and costs could be reduced by removing taxes on the premiums collected within the pool. Mr Trowbridge argued that premiums could be lowered under this scenario as insurers would price against the shared risk.[197]

9.205The NDIR final report proposed a system of premium discounts and a reinsurance pool. The report recommended five criteria for policyholders:

• premiums should be higher where the level of flood risk is higher (that some level of price signals be retained);
• that those homes without flood risk should not pay a flood premium;
• that there should not be cross-subsidisation of premiums between policyholders;
• that there should be some limitations on discounts for high value homes; and
• that the discount mechanism should be simple for policyholders and automated for insurers.[198]
  206. The NDIR also recommended a model in which insurers maintained their relationship with policyholders and that they continue to insure part of the flood risk. The government intervention recommended by the NDIR would deliver premium reductions through subsidising “claims rather than premiums.” The report argued:

…the recommended approach would maximise, in expectation, the level of premium discount that can be achieved for a given level of external funding support because the support is only called upon when a claim is made upon the pool, not each year as premiums are paid. A premium subsidy to insurers, on the other hand, would probably need to be paid according to the market price. That would include subsidising the return on capital and other components of the price that are in addition to an estimate of the risk. It would rely on each individual insurer’s own pricing basis and would need to be supported by some form of compliance regime.[199]

9.207The NDIR recommended a reinsurance pool that would offer insurers a discounted premium for the portion of the flood risk covered by the pool. The NDIR proposal is for insurers to carry the ‘first loss’ and for the reinsurance pool to operate on an excess loss basis. The report also recommended that: “homes at high and extreme risk of flood be provided with discounts initially and that they be assessed regularly for mitigation work already undertaken and the potential for further mitigation.”[200]And the report recommended that the discount be unwound over time, as is the case with some schemes in other countries, such as the UK’s Flood Re.[201]

9.208Lloyd’s supported a potential reinsurance framework for a government and industry partnership in line with its ‘Black Swan Re’ concept paper which it believed could better protect customers from climate change impacts and other systemic risk events. Industry would pay into the fund.

9.209Lloyd’s submitted that its proposal would ensure that more of the costs of systemic event impacts are paid for by those that are protected against the events, that it would drive mitigating behaviour by pricing insurance to reflect the risk of exposure and provide capital from the private sector, to cover payouts and facilitate sustainable investment through the fund, without risk needing to be taken on by the Australian Government.[202]

9.210In general, however, insurers and reinsurers did not support government intervention in the insurance market to reduce premiums where the reduction in the underlying risk was not the main driver for the premium reduction. Youi told the Committee it was opposed to a flood pool because it did not believe a pool would be an effective risk mitigator or address insurance affordability.

Youi would not be supportive of measures that do not address the underlying risk. For example, Youi does not believe that insurance pools would be an effective mitigator or address affordability of insurance. An insurance pool is in effect requiring one cohort of customers to cross subsidise other customers without providing any mitigation for when natural disasters occur. Over the longer term, this will be detrimental to all customers.[203]

9.211Munich Re also cautioned the use of a government reinsurance pool to address flood insurance affordability, noting they are primarily established when there was not enough capacity in the global reinsurance market to operate, for example with the terrorism pool, meaning that most domestic insurers would not have capacity to cover the risk. Munich Re noted there was still capacity in the global reinsurance market to cover flood (confirmed by APRA and the insurance industry throughout the inquiry). Both Munich Re and Swiss Re agreed that the other perceived benefit, reduced premiums, could only eventuate if the pool was set up to put pressure on risk reduction—simply pooling together risks will not make premiums cheaper.[204]

9.212In the Productivity Commission’s most recent 5-yearly productivity report Advancing Prosperity, it recommended Australian governments avoid expansion of climate-related insurance sector interventions, as it risks subsidising the movement of individuals, households and businesses into harm’s way, and increasing overall adaptation costs. The Productivity Commission also recommended the phase out of the Cyclone Pool for the same reasons.[205]

9.213Evidence from reinsurers and the Productivity Commission suggests that, should a reinsurance pool be considered, it should be in conjunction with other policy levers, such as community mitigation, household mitigation and resilience (with premium reductions) and a restriction on any new developments in high-risk areas.

9.214Evidence was also made available to the Committee that certain design rules underpinning the Cyclone Pool could make it unsuitable for expansion to cover flood. In their Funding Costs for Floods report, the Actuaries Institute argued against expanding the Cyclone Pool to include broader flood risks, reasoning:

Upon review of the characteristics of flood risk, we conclude that the funding structure and design of the Cyclone Reinsurance Pool (the Cyclone Pool) are not suitable for extension to address the current flood insurance affordability challenge. Flood risk is highly localised and disproportionately affects a relatively small number of households which are the most affordability-stressed, while cyclone risk is more geographically widespread with little differentiation between affordability-stressed and non-affordability-stressed households. Unlike cyclone, the majority of policyholders with little or no flood risk pay no flood premium, meaning it is not possible to fund a flood solution from low-risk policyholders without their costs increasing, which would be a breach of the design rules that apply to the Cyclone Pool.[206]

9.215Mr Trowbridge noted that the outcomes of the Cyclone Pool, which will be seen in the coming years, will inform government consideration of how to support the affordability and availability of flood coverage and coverage for other natural disaster risks, including providing the government with more information about design limitations.[207]

Insurer concerns about flood coverage within the Cyclone Reinsurance Pool

9.216Although not a focus of the inquiry, commentary was made around the 48-hour rule used to define a covered flood event in the Cyclone Pool, and how this may be impacting insurer’s ability to offer affordable premiums for flood cover in northern Australia.

9.217The Cyclone Pool covers claims for cyclone-related flood damage arising during a cyclone until 48 hours after the cyclone ends.[208] RACQ told the Committee:

…just over 40 per cent of cyclones over a 40- or 50-year period in Australia have had more of their damage occur more than 48 hours after the cyclone ceased to be a named cyclone but typically within seven days of that time. Why are the seven days important: because that's what the global reinsurance industry typically uses, or 168 hours, as the period covered for a single event... what it means is that we have to hold some reinsurance for the time between 48 hours and one minute and seven days, and that just adds cost and complexity.[209]

9.218The ICA similarly noted:

These tropical cyclones turn into massive lows and will hang around for weeks. The flooding that comes out of a cyclone is often more devastating than the cyclone itself. We've got to think about that cost, because insurers still need to get that reinsurance on the global market, alongside what they now pay in a rate card to the ARPC [Australian Reinsurance Pool Corporation].[210]

9.219The Joint Committee on Northern Australia’s First Report on the Cyclone Reinsurance Pool has recommended the impact of the 48-hour clause on the cost of insurance premiums and the availability of insurance in the region be reviewed as part of the 2025 review of the Cyclone Pool.[211]

Options for insurance product innovation

9.220Internationally, there have been a number of private sector innovations to reduce the disaster coverage gap. For example, there have been a number of start-ups which have begun offering parametric insurance to households. As explained in chapter 3, parametric insurance is an index-based solution whereby a premium is paid in return for a specific payout if a pre-defined event occurs. A pre-agreed payout would be made if a parameter or index threshold is reached or exceeded, such as a certain rainfall level or water height for a flood.[212]

9.221Parametric insurance provides a number of benefits for policyholders and insurers: it speeds up payments following a claim, removes the need for loss assessments on individual properties (as the payment is based on the measurement used, not the loss incurred) and reduces costs typically incurred throughout the processing of a claim. The availability of parametric insurance is currently very limited, with one company, Descartes Underwriting, known to be offering parametric insurance for flood cover in Australia.

9.222The Committee heard mixed views on whether greater availability of parametric products would reduce uninsurance or underinsurance. For example, the Byron Bay Council submitted that parametric insurance should be considered, with a standardised payout amount linked to the event, rather than determining payouts based on the magnitude of loss,[213] while the Byron Bay Chamber of Commerce also told the Committee that parametric insurance can be ‘expensive’ and not necessarily feasible for people seeking flood cover.[214]

9.223Nonetheless, stakeholders were generally supportive of governments and insurers trialling new parametric solutions to consumers. For example, Swiss Re submitted that it supported Australian governments working with insurers and reinsurers to facilitate innovation, including by creating a regulatory environment that enables access to a broad range of insurance solutions and providers, especially parametric/index-based solutions.[215] It also encouraged insurers to consider options for products which have a sublimit, which may be more appealing for policyholders whose properties regularly flood but have been made more resilient, such that a smaller amount is needed to cover items such as internal fittings, rather than cover for a total sum loss.[216]

9.224Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice recommended governments expand funding for trials of microfinance insurance products (which is a common type of parametric insurance) to provide protection for people on lower incomes.[217] The consumer groups believed there were opportunities to cover the insurance gap using innovative products, and noted some insurers had made attempts to offer these products in the past, but the low success rate may indicate government financial support is required:

I think some investment could be made into some inquiries about what products could be brought to market that would help fill this gap that we're seeing…I know that there was one major insurer who had a kit home idea a couple of years ago, but it was a product that was never going to be very profitable so they never really advertised it, and now you can't even find it anymore. So maybe there's some seed funding that needs to happen from philanthropics or from government to get these products which aren't going to be profitable products but which will help meet the gap in the market, because there are really creative ideas out there and we do not need to just stick with the very pure market, capitalist, profit-making products that we basically have at market right now.[218]

9.225Some stakeholders also supported insurers offering a greater range of products to small businesses operating in a high-risk area, particularly where they have agreed to undertake mitigation actions to reduce the potential damage incurred from floods. Northern Midlands Business Association noted that of the 20 companies they had sought insurance from, only one company provided the option of partial coverage. It noted that for insurers to feel more comfortable offering flood insurance to businesses however, governments would first need to implement mitigation strategies to further reduce flood risk.[219]

9.226The Byron Bay Chamber of Commerce advocated for insurers to provide capped cover with a larger excess, including policies which provide for business owners to make co-payments with the insurer, so that businesses can get trading again, stating:

In a very practical sense, the largest asset of any business is the turnover that comes through the business. Without that turnover, they've got nothing. Getting back trading again, even if it's trading ugly, is better than not trading at all. The example might be a floor coverings business. The reality for them is that a small amount of money allows them to rewire their premises, get some stock in and start selling carpet. Carpet's a hot property after a flood, but they miss out on the uplift post flood because they haven't had the money to get trading again, so everyone's buying their carpet out of the area. That's a double hit for that poor carpet retailer. This happens, writ large, across most businesses in the flood area.[220]

9.227The Byron Bay Chamber of Commerce also advocated for improved Australian standards and the subsequent capture of business continuity plans or disaster response plans for floods to same way entities need to regularly check and provide evidence of adherence to fire detection systems, to give insurers confidence that buildings have been constructed with flood resilient materials and have adopted other mitigation strategies.[221]

9.228Lismore City Council believed parametric products could assist businesses, if the data was available to take policyholders specific circumstances into account, while noting businesses would still need to mitigate against flood events that do not meet the threshold for payment.[222]

9.229Hollard told the Committee that it advocates for insurers coming to the market with special products, including parametric insurance products, stating:

In overseas jurisdictions there is talk around what we call parametric insurance products and so on. So, in the event of a specific flood you might provide enough funding for the customer to get back on track, but it wouldn't cover the full sum insured of their property. Both of those things [in addition to a flood reinsurance pool] are things that we would be advocating for.[223]

9.230Allianz submitted that it is exploring options for offering parametric insurance for customers exposed to flood risk.[224]

Tax reform required to reduce premiums

9.231In its 2023 Funding Costs for Floods report, the Actuaries Institute (the Institute) found that taxes are the next biggest single contributor to premium affordability after flood risk. Currently, taxes on insurance include Goods and Services Tax (GST) and state-based insurance taxes, stamp duty and Emergency Services Levies (ESL).[225]

9.232In its report, the Institute recommended states and territories consider tax reform as an immediate cost reduction measure. The Institute recommended that states and territories replace stamp duty and ESL with more equitable revenue sources, suggesting property-based levies as one example (as GST is intended to be a broad-based tax across goods and services, no recommendation has been made to remove the GST).[226] Table 9.1 shows the mean taxes and government levies the Institute has estimated are applied to home insurance by state and territory.[227]

Source: Actuaries Institute, Funding for Flood Costs report, August 2023, p. 10.

*Note: Following the release of the Actuaries Institute’s Funding Costs for Floods report, the Tasmanian Government announced it would not be moving forward with the removal of the fire and emergency services levy.

9.233Insurers and other stakeholders advised the Committee that taxes on insurance premiums are contributing to insurance unaffordability as most of these taxes are proportional to the premium charged and therefore those who pay the highest premiums are also paying the greatest amount of tax on their insurance.

9.234In its submission to the inquiry, the ICA has called on states and territories to abolish these taxes, citing multiple government-led and independent reviews, including the 2008 Henry Tax Review, 2020 ACCC Northern Australia Insurance Inquiry and 2020 New South Wales Review of Federal Financial Relations, which all recommended abolishing taxes on insurance.[228] The ICA has argued that the $6 billion it estimates is taken annually by states and territories through stamp duties and levies on insurance are ‘unfair and distortionary’, stating:

Depending on the state or territory, government taxes and charges can add 20 to 40 percent to premiums…All jurisdictions except the ACT impose stamp duty on insurance, ranging from 9-11 per cent of premiums.

Insurance taxes are on top of the GST, making insurance one of the few products that is double-taxed (or tripled taxed in the case of NSW and Tasmania).[229]

9.235The ICA noted that two states – NSW and Tasmania – continue to charge insurance customers to fund emergency services, adding a third layer of tax that increases premiums. All other jurisdictions have abolished these levies.[230]

9.236Suncorp also submitted modelling to the Committee which indicated that:

• using 2022 tax rates, a hypothetical homeowner in a higher risk NSW zone, such as Lismore, would pay a home insurance premium of $2,459.88 including $813.96 in taxes (ESL, GST and Stamp Duty). This would be twice as much tax as the same hypothetical homeowner in a lower risk NSW zone such as Mascot, who would pay a home insurance premium of $1,683.67 including $418.60 in the same insurance taxes; and
• while most states and territories applied taxes to home and business insurance policies equally, taxes applied when businesses took out insurance in NSW and Tasmania were disproportionately higher than in other states – 55.27 per cent for businesses compared to 36.09 per cent for home insurance in NSW, and 54.88 per cent for businesses compared to 21 per cent for home insurance in Tasmania.[231]
  237. Allianz also illustrated how taxes are adding significantly to the cost of flood insurance premiums for policyholders exposed to high flood risk:

Allianz's flood rating models produce flood premiums of up to four percent of a home building sum insured and 13 percent for contents, before taxes. Thus, for example, the flood premium for a house insured for $500,000 could be as high as $20,000. If that homeowner wanted flood insurance for $100,000 in contents cover, the premium could be as high as $13,000. The flood premium for this possible home and contents policy with a total sum insured of $600,000 would be $33,000, before tax. Add circa 10 percent State Stamp Duty ($3,300) and 10 percent GST ($3,630) and the policyholder's after-tax premium is $39,930. If this home was in NSW, a circa 18 percent in Emergency Services Levy (ESL) would be added, taking the total after-tax flood premium to around $45,000. Of course, the non-flood premium also needs to be added which will vary due to other risk rating factors, for example, related to other potential natural perils (eg bushfire), other risks (eg burglary), building construction characteristics etc.[232]

9.238The impact of taxes applied as a percentage of premiums on the distribution of tax paid in different locations in Australia was made further apparent by RACQ:

In Brisbane, the average premium is $2,062 for an average sum insured of $573,766. In north Queensland, the average premium is $3,624 for an average sum insured of $386,526. So north Queensland is paying about 1½ times more premium than Brisbane. Because GST and stamp duty are charged as a percentage of premium, the same average north Queensland homeowner is paying $302 of GST and $299 of stamp duty on their premium, while the average Brisbane homeowner is only paying $172 of GST and $170 of stamp duty. The north Queensland homeowner pays 70 per cent more in tax for a sum insured that is 30 per cent lower—much more tax for less asset value insured.[233]

9.239Other insurers also supported the removal of state-based taxes and levies from insurance, including Youi, IAG, QBE, A&G and Hollard, as did the Australian Consumers Insurance Lobby.[234]

9.240The NSW Government has announced their intention to abolish the emergency services levy (which can add up to 18 per cent to home insurance premiums and 30 per cent for commercial properties in NSW) and find a fairer way to fund emergency services.[235]

9.241In addition to the direct impact on premiums, the broader economic impacts of insurance taxes are worth considering. Taxation systems are generally reviewed against criteria such as: fairness, efficiency, transparency, enforceability, certainty and simplicity.

9.242The notion of efficiency is key to economic analysis and refers to the degree to which a tax distorts individuals’ and firms’ decisions – such as decisions in relation to labour supply, savings and investment.

9.243The Henry Review examined a wide range of Federal and State taxes and argued in favour of significant reform to Australia’s tax system. It cited computable general equilibrium (CGE) analysis which examined the welfare impacts of various taxes, through the distortionary impacts they have on behaviour. It found that insurance taxes were a highly inefficient form of taxation, with the second highest welfare losses of all taxes ranked. In contrast, municipal rates and land taxes had very low distortionary impacts and welfare losses. Therefore, revenue neutral tax reform that shifted from insurance taxes to land taxes would generate significant economic and welfare gains.[236]

9.244The Henry Review observed that:

Imposing specific taxes on insurance deters people from insuring their property and encourages them to bear unnecessary risks, rather than pooling risk with others. Rates of non-insurance (for building and content insurance) generally are higher at lower incomes, yet low-income people are less able to bear the risk.[237]

9.245Insurance taxes have become a significant source of revenue for state governments. However, they are a highly inefficient and distortionary form of taxation. State governments should explore ways in which to shift to other, less distortionary sources of revenue.

Committee comment

9.246The 2022 major floods have prompted various responses from insurers, governments, policyholders and other stakeholders, as they have come to understand the growing risks associated with extreme weather events and, in particular, the high costs caused by damage from increasingly frequent and intense floods.

9.247As discussed in Chapter 8 and this chapter, both insurers and councils have sought to update the quality of their flood data. Several councils in areas impacted by flooding in 2022 and more recently have commissioned updated flood maps and are prioritising mitigation work to limit the impact of floods on local communities. Insurers meanwhile, have sought to incorporate updated mapping by local councils, as well as other technology, to analyse and price risk at more granular levels. In some instances, prices now reflect risk at the household or business level, or at least insurers are increasingly trending towards pricing properties to reflect the individual risks of the property, and away from cross-subsidisation by other policyholders.

9.248Some insurers have reassessed their exposure to flood risk and implemented policies which limit their exposure, to flood risk generally, but also by location, reducing the number of insurers policyholders in high-risk areas have to choose from when seeking insurance. Some insurers have also moved to change their product offerings, either to make flood insurance a standard inclusion or to bundle flood “opt-out” to other forms of water damage.

9.249These trends indicate the number of households and businesses at risk of not being able to afford flood insurance will increase over time as major floods become more common and insurers continue to reassess their comfort with flood risk exposure. Higher global costs from perils are also likely to have an impact on prices as reinsurers seek to recover costs for more frequent, damaging catastrophe events.

9.250In locations where opt-out is not available, houses with a high risk of flooding will potentially not be able to secure any home insurance at all. Non-insurance can have major impacts on households’ ability to manage risks, including non-peril risks. It may also have flow on impacts where a considerable number of mortgage holders will be non-compliant with their obligation to hold insurance or will be unable to access mortgages tied to the property in the future.

9.251The number of properties that will be frequently impacted by floods is also predicted to increase. Currently, the ICA estimates 250,000 homes are exposed to a 1-in-20 year or higher risk of flooding. The number of homes with this level of exposure is expected to increase, with the number of new homes to be captured dependent on factors such as the extent to which sea levels rise and the extent of any new developments in flood-prone locations.

9.252The Committee is of the view that government intervention may be necessary to improve the affordability of flood insurance and manage the risks of households with a 1-in-20 year flood risk (or higher). However, if the Australian Government is to intervene, it should be undertaken on the basis of the overarching principles contained in Recommendation 1.

9.253The Committee is of the view that the assumption of risk by the Commonwealth should only occur if accompanying policy measures limit and, over time, reduce the underlying risk.

9.254Regardless of whether the government intervenes to make flood insurance more affordable for Australia’s highest risk households and businesses, the Committee strongly supports further action by both governments and insurers to reduce flood risks. The evidence provided to this inquiry predicts that unless meaningful action is taken to mitigate against flood risks, more frequent and intense floods will significantly increase the insured and uninsured costs of flood-related damage. This in turn will continue driving up insurance costs for an increasingly greater number of Australian households.

9.255In light of these findings, the Committee has made specific recommendations to the Australian Government, the ICA and insurance industry to take collective action to lessen the pressures driving up premiums, generate more affordable premiums for households, and where risk reduction is not possible, to support Australians to relocate to safer areas. These include:

• for all levels of government to work together to ensure that no further development occurs in areas of 1-in-100 flood risk or greater, with reference to climate modelling of future increases in risk. As part of this work, the Committee supports the development of measures to discourage banks from loaning for further development at a 1/100 risk or higher.
• the strengthening of building codes and planning rules to include projected increases in risks based on climate modelling as well as consumer access to a disaster risk rating system.
• ensuring at least $200 million per year ongoing in community mitigation funding, noting that significantly more is still spent on disaster recovery than disaster preparation and mitigation.
• support for the development of a climate financing framework in relation to government mitigation and adaptation funding, including exploring alternative sources of finance for mitigation projects.
• measures to facilitate the exchange of substantiated information about the resilience of a property, including new mitigation work undertaken, so that insurers can reduce premiums with confidence that there is a reduced risk to the property.
• the development and publication of advice on the mitigation measures households can undertake to improve the flood resilience of their property.
• measures to repurpose areas with high flood risk for alternative purposes, including returning developed land into a pre-developed state or repurposing land for recreational or agricultural use.
• exploration of product innovations that could help bridge the flood insurance gap, including parametric insurance solutions, as well as opportunities to improve coverage for small businesses operating in high-risk locations, including whether partial coverage could be provided.
  256. In 2014, the Productivity Commission examined government spending on natural disasters and found that 97 per cent of spending by the Australian, state and territory governments was on recovery, compared to only 3 per cent on preparation, mitigation and resilience. These proportions would have shifted with the Australian Government now spending $200m per year on mitigation and the Australian, Queensland and NSW governments spending around $1.5 billion on resilience, mitigation and buybacks following the 2022 floods. However, government spending remains skewed towards recovery. The Committee recommends that further efforts be made at all levels of government to place more emphasis on mitigation, resilience and adaptation.
  257. The Committee also believes that government spending on infrastructure should aim to build back better where this is feasible from an engineering perspective and represents value for money. In determining how to build back better, government should take account of not just current flood risk, but also the best available modelling of the likely trajectory of flood risk based on climate modelling.
  258. Finally, the Committee has made recommendations to state and territory governments to remove stamp duties and remaining emergency services levies from insurance products. Taxes make up a significant portion of policyholders’ premiums, with the amount of tax paid increasing as premium prices increase, contributing to the unaffordability of flood cover for properties in higher-risk locations. The Committee has also posited that where state and territory taxes are removed, insurers need to pass on the savings gained to policyholders in full through reduced premiums.

9.259The Committee recommends the Australian Government consider measures to improve the affordability of flood insurance for existing policyholders with high flood risk properties, including the appropriateness of a government supported reinsurance arrangement.

Any interventions to improve the affordability of flood insurance should be pursued in accordance with to the following interdependent principles:

• Affordable cover for even high-risk properties. Flood insurance should be available to all Australian homeowners and body corporate lot owners at an affordable price, but with conditions.
• Price signals. Any assistance to affordable insurance should not compromise price signals against full cost of risk. This could be achieved by partial (but not full) reduction of the premium and/or a gradual phasing out of some assistance.
• Cross-subsidies. Any scheme of reinsurance support or subsidies should minimise cross-subsidisation through premiums where possible as this could raise issues of fairness (for example, low-income households cross-subsiding higher risk high-income households) and could be economically inefficient in that it may create a disincentive to insure.
• Phase-out. That any scheme involving public funding being devoted to a reinsurance pool or subsidies, should be phased out over time in line with ongoing investment in community and household mitigation to reduce the underlying risk over time.
• The underlying risk: no new developments. Governments at all three levels should commit to arrangements (including more public disclosure) to ensure that no new developments occur in high-risk areas.
• The underlying risk: community mitigation. Federal and State governments should commit to ongoing investment in community mitigation. This should include a guaranteed minimum annual investment level and the development of rigorous business cases.
• The underlying risk: household mitigation. Households and small business should be provided with information on mitigation options and their premiums should be reduced immediately when they undertake such mitigation.

9.260The Committee recommends that the Australian Government work with State, Territory and local government through National Cabinet to ensure that further development does not occur in areas of 1-in-100 flood risk or greater.

The boundary for no future development should take account of climate modelling of future increases in risk, in addition to current estimates of risk.

The Committee further recommends that the Australian Government explore mechanisms that it can adopt to give effect to this unilaterally, including:

• Publicly disclosed risk information at the individual property level, including for new developments. This could be through a range of mechanisms, including:

• a portal informed by data provided to the Commonwealth government through the Hazards Insurance Partnership for all property released for development.

• A regulatory mechanism to discourage banks from loaning for further development at a 1/100 risk or higher (such as risk rating banks’ capital to appropriately reflect flood risk; an agreement between government, the Australian Prudential Regulation Authority, and major banks that such loans will not occur, or other regulatory mechanisms). These measures could apply to lending to both developers and to residential purchasers.
• Access to any flood pool (or subsidies) would not be available to properties approved in high-risk areas after the creation of the scheme.

9.261The Committee recommends that the Australian Government work with state, territory and local governments through National Cabinet to ensure that publicly disclosed risk information at the individual property level is available through the property conveyancing process or mandated in state rental agreement regulation.

9.262The Committee recommends that building codes and planning rules be strengthened and future-proofed to improve the resilience of communities and households, consistent with Recommendation 2 of the Actuaries Institute’s Funding for Flood Costs report.

• This should take into account not just current flood risks, but also projected increases in risks based on climate modelling
• Consideration should be given to the publication of a freely available disaster risk rating system.

9.263The Committee recommends the Australian Government continue to fund community level mitigation, ensuring at least $200 million per year ongoing.

9.264The Committee recommends that a climate financing framework be developed in relation to government mitigation and adaptation funding. That this framework create the appropriate incentives for both public sector and private sector investment in mitigation and more resilient buildings and infrastructure. This would include:

• Rigorous project evaluation and prioritisation, including cost benefit analysis and the incorporation of climate modelling.
• Strong project governance including reporting, monitoring and evaluation.
• Post-project price monitoring where appropriate.
• The development of resilience financing where feasible and appropriate.
• The exploration of public-private partnerships to coinvest in new or upgraded infrastructure.

9.265The Committee recommends the General Insurance Code of Practice be amended to require that insurers be required to consider relevant property-level mitigation measures in any new or renewing insurance policy, and to demonstrate how those measures have been reasonably reflected in the proposed premium.

After the Code is registered with the Australian Securities and Investments Commission, the Committee also recommends that the Treasurer issue a ministerial direction for the appropriate regulator to periodically review insurers’ compliance with passing on premium reductions.

9.266The Committee recommends the Australian Government consider measures to reduce household level risks, including whether it would be appropriate to extend the Bushfire Resilience Rating Home Self-Assessment App to flood risks.

9.267The Committee recommends the Australian Government work with the Insurance Council of Australia to develop and publish advice on the mitigation measures households could undertake to improve the flood resilience of their property.

9.268The Committee recommends the Australian Government and Insurance Council of Australia explore measures to facilitate the exchange of substantiated information about the resilience of a property to insurers, including new mitigation measures undertaken through state-based grant and loan programs.

9.269The Committee recommends insurers facilitate options for policyholders to provide additional information to insurers about the resilience of their property to flood risks, and make further investments to better integrate reported resilience measures into the calculations of premiums.

9.270The Committee recommends that state and territory governments develop buyback and resilience programs for households with very high flood risk and where alternative mitigation measures are unlikely to manage the risk. The Australian Government should consider working with state and territory governments, including through co-funding models, where appropriate.

9.271The Committee recommends the Australian Government work with state and territory governments to review the operation of existing buy-back schemes to ensure they are targeted appropriately and to evaluate the outcomes for households that have received assistance.

9.272The Committee recommends the Australian Government collaborate with state governments to implement measures to repurpose areas with high flood risk for alternative purposes, including returning developed land into a pre-developed state or repurposing land for recreational or agricultural use.

9.273The Committee recommends that insurers explore offering innovative insurance products that have the potential to improve the operation of the insurance market, including:

• More flexible insurance products for small business, including:

• partial coverage for small businesses in high-risk areas; and
• cashflow assistance or other temporary benefits that might help a small business survive the immediate aftermath of a natural disaster.

• Parametric insurance, particularly in high-risk areas and/or for consumers facing affordability stress.

9.274The Committee recommends that the New South Wales and Tasmanian governments collaborate with industry and local governments to reform emergency services levies, aiming to enhance premium affordability and reduce barriers to insurance uptake.

9.275The Committee recommends that state and territory governments remove state-based taxes on general insurance products and shift the tax burden toward less distortionary taxes.

Where state or territory governments reduce taxes or levies on insurers, that insurers commit to passing these savings on in full through lower premiums.

Dr Daniel Mulino MP

Chair

9 October 2024

Footnotes

[1]Insurance Council of Australia (ICA), Submission 11, p. [8]; Mr Andrew Hall, Chief Executive Officer, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 2.

[2]ICA, Submission 11, p. [8].

[3]Mr Trent Thomson, Chief Executive Officer, Australia and New Zealand, Swiss Re Asia, Australia Branch, Committee Hansard, 15 March 2024, p. 10.

[4]Bureau of Meteorology and Commonwealth Scientific and Industrial Research Organisation, State of the Climate 2020, www.bom.gov.au/state-of-the-climate/documents/State-of-the-Climate-2020.pdf.

[5]Mr Ian Goninon, Chairman, Northern Midlands Business Association, Committee Hansard, Devonport, 17 July 2024, p. 16.

[6]ICA, Submission 11, pp. [12], [17].

[7]Australian Prudential Regulation Authority, Submission 56, pp. 1-2.

[8]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 2.

[9]Australian Prudential Regulation Authority, Supplementary Submission 56.1, p. 4.

[10]Australian Prudential Regulation Authority, Supplementary Submission 56.1, p. 3.

[11]Australian Prudential Regulation Authority, ‘Register of general insurance’, www.apra.gov.au/register-of-general-insurance.

[12]IBISWorld, General Insurance Industry in Australia, ANZSIC K6322, January 2024, www.ibisworld.com/au/industry/general-insurance/526/#IndustryStatisticsAndTrends.

[13]Insurance Council of Australia, ‘Submission to the Quality of Advice Review’, 3 June 2022, p. 5.

[14]See, for example, Mr Paul Fahey, Chief Executive Officer, Hollard Insurance Company, Committee Hansard, 21 February 2024, pp. 20-21; Ms Sue Houghton, Chief Executive Officer, Australia Pacific, QBE Insurance (Australia) Ltd, Committee Hansard, 21 February 2024, p. 12; Mr Richard Feledy, Managing Director, Allianz Australia Insurance Limited, Committee Hansard, 9 February 2024, p. 27; Legal Aid Queensland, Supplementary Submission 8.1, p. 1.

[15]Victorian Council of Social Service, Submission 10, p. [4]; Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 57; Legal Aid NSW, Submission 34, p. 13, 26; National Emergency Management Agency, Submission 40, p. 1; IAG, Mr Scott Hawkins, Munich Holdings of Australasia, Committee Hansard, 23 February 2024, p. 17

[16]Actuaries Institute, Home Insurance Affordability and Home Loans at Risk, August 2024, p. 4.

[17]Mrs Suzanne Smith, Executive Board Member, Australian Prudential Regulation Authority, Committee Hansard, 2 February 2024, p. 26.

[18]Mr Jonathan Wood, Head, Insurance Risk, Australian Prudential Regulation Authority, Committee Hansard, 2 February 2024, p. 26.

[19]Mrs Laura-Jo Mellan, Director Planning and Environment Services, Maribyrnong City Council, Committee Hansard, Maribyrnong, 17 April 2024, p. 7; Legal Aid Queensland, Submission 8, p. 11.

[20]Appendix C, Committee survey results.

[21]Allianz Australia, Submission 13, p. 20.

[22]Actuaries Institute, Home Insurance Affordability and Home Loans at Risk, August 2024, p. 4.

[23]Actuaries Institute, Home Insurance Affordability Update, August 2023, pp. 4, 15.

[24]Actuaries Institute, Home Insurance Affordability and Home Loans at Risk Report, August 2024, p. 12.

[25]Actuaries Institute, Home Insurance Affordability and Home Loans at Risk Report, August 2024, p. 12.

[26]Councillor Steve Pickering, Councillor, Clarence Valley Council, Committee Hansard, Lismore, 11 April 2024, p. 7.

[27]National Insurance Brokers Association, Submission 3, pp. 2-3.

[28]Legal Aid Queensland, Submission 8, p. 11.

[29]Mr Andrew Armitstead, Chief Executive Officer, CivicRisk Mutual, Committee Hansard, Parramatta, 10 May 2024, p. 5.

[30]Mr Andrew Armitstead, Chief Executive Officer, CivicRisk Mutual, Committee Hansard, Parramatta, 10 May 2024, p. 5.

[31]Brendan O’Malley, The Courier Mail, ‘Brisbane flood insurance jumps up to 10 times after alarming new Council maps’, www.couriermail.com.au/news/queensland/brisbane-flood-insurance-jumps-up-to-10-times-after-alarming-new-council-maps/news-story/3e4a0b83e18f848929e9e8c1e19691ae, 16 September 2024.

[32]RACQ Group, Submission 15, p. 1; Suncorp Group, Submission 12, p. 5; QBE Insurance Group, Submission 17, p. 7; Youi, Submission 14, p. 9; Hollard Holdings Australia, Submission 19, p. 14.

[33]Suncorp Group, Submission 12, p. 5; AAMI, ‘Flood cover for your home’, www.aami.com.au/home-insurance/flood-cover.html;Liam Walsh, Australian Financial Review, ‘Insurers on top in spats with customers about flood experts’, https://www.afr.com/companies/financial-services/insurers-on-top-in-spats-with-customers-about-flood-experts-20240205-p5f2jc, 5 February 2024.

[34]Auto & General Holdings, Submission 18, p. 4.

[35]Allianz Australia, ‘Allianz to introduce flood cover as standard in home insurance policies’, 14 May 2024, www.allianz.com.au/about-us/media-hub/allianz-to-introduce-flood-cover-as-standard-in-home-insurance-policies.html.

[36]Insurance Australia Group, Submission 16(2), p. 1.

[37]For example, Ms Elizabeth Lehmann, Senior Outreach Solicitor, Disaster Response Legal Service, Legal Aid NSW, Committee Hansard, Lismore, 11 April 2024, p. 29.

[38]APRA, Supplementary Submission 56.1, p. 6.

[39]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 11.

[40]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 15.

[41]The COR measures an insurance company’s underwriting profitability by comparing its incurred claims and expenses to its earned premiums. A COR below 100 per cent indicates underwriting profitability, while a COR above 100 per cent indicates underwriting losses, meaning incurred losses and expenses outstrip earned premiums.

[42]APRA, Supplementary Submission 56.1, p. 7.

[43]ICA, Submission 11, p. [2].; Mr Scott Hawkins, Managing Director, Munich Holdings of Australasia, Committee Hansard, 23 February 2024, p. 19.

[44]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 16.

[45]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 15.

[46]ICA, Submission 11, p. [24].

[47]Mrs Suzanne Smith, Executive Board Member, APRA, Committee Hansard, 2 February 2024, p. 23.

[48]Mr Jonathan Wood, Head, Insurance Risk, APRA, Committee Hansard, 2 February 2024, p. 21.

[49]Mr Scott Hawkins, Managing Director, Munich Holdings of Australasia, Committee Hansard, 23 February 2024, pp. 18-19.

[50]Mr Chris Mackinnon, Lloyd's General Representative in Australia, Lloyd's Australia Ltd, Committee Hansard, 15 March 2024 p. 49.

[51]Mr Scott Hawkins, Managing Director, Munich Holdings of Australasia, Committee Hansard, 23 February 2024, p. 19.

[52]Mr Scott Hawkins, Managing Director, Munich Holdings of Australasia, Committee Hansard, 23 February 2024, p. 23.

[53]Appendix C, Committee Survey Results.

[54]Name Withheld, Submission 89, p. 1.

[55]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 51.

[56]Mayor Teresa Harding, Mayor, Ipswich City Council, Committee Hansard, Logan, 10 April 2024, p. 30.

[57]Ms Venecia Wilson, Private capacity, Committee Hansard, Richmond, 9 May 2024, p. 27.

[58]Mr Peter Sheath, Acting Unit Manager, Environmental Management, Central Coast Council, Committee Hansard, Parramatta, 10 May 2024, p. 4.

[59]Mr Andrew Armitstead, Chief Executive Officer, CivicRisk Mutual, Committee Hansard, Parramatta, 10 May 2024, p. 4.

[60]Appendix C, Committee Survey Results.

[61]Insurance Council of Australia, 2024-25 Pre-Budget Submissions 2024, p. [4].

[62]Planning Institute of Australia (Victoria), Submission 75, p. 7.

[63]Australian Competition and Consumer Commission, Northern Australia Insurance Inquiry, Final Report, 2020, pp. 465-466.

[64]Royal Commission into National Natural Disaster Arrangements, Final Report, 2020, pp. 7, 110, 121.

[65]Disaster Legal Help Victoria, Submission 7, p. 6.

[66]New South Wales Government, 2022 Flood Inquiry: Volume Two: Full report, 29 July 2022, p. 292.

[67]New South Wales Government, 2022 Flood Inquiry: Volume Two: Full report, 29 July 2022, p. 292.

[68]Mr Peter Gartlan, National Coordinator, Financial Counselling Australia, Committee Hansard, 1 February 2024, p. 6.

[69]Financial Legal Rights Centre, CHOICE, Consumer Action Law Centre, Westjustice, Submission 27, pp. 5-6, 11-12, 52; Ms Sharon Keith, Program Manager, Disaster Legal Help Victoria, Committee Hansard, 31 January 2024, pp. 27,30; Ms Ma’ata Solofoni, Senior Solicitor, Disaster Recovery and Insurance, Legal Aid New South Wales, Committee Hansard, 31 January 2024, p. 39; Mayor Jon Raven, Mayor, Logan City Council, Committee Hansard, Logan, 10 April 2024, pp. 24-25.

[70]Suncorp Group, Submission 12, p. 13.

[71]Allianz Australia, Submission 13, p. 21.

[72]Dr Jill Charker, Deputy Coordinator-General, Disaster Resilience and Recovery, National Emergency Management Agency, Committee Hansard, 15 March 2024, pp. 29-30.

[73]See, for example, Mr Paul Holmes, Assistant Director, Disaster Relief, Legal Aid Queensland, Committee Hansard, 31 January 2024, p. 45.

[74]Youi, Submission 14, pp. 27-28.

[75]Legal Aid New South Wales, Submission 34, p. 29.

[76]For example, Insurance Council of Australia, Building Australia’s Resilience – Policy recommendations for federal and state governments, https://insurancecouncil.com.au/wp-content/uploads/2023/07/20894_ICA_Resilience-Advocacy-Asks-FINAL.pdf; Insurance Australia Group and Rhelm, Planned Relocation: Protecting our Communities, March 2023, www.iag.com.au/sites/default/files/Documents/About%20us/Final%20report_0.pdf.

[77]Australian Institute for Disaster Resilience, Land Use Planning for Disaster Resilient Communities, 2020, pp. 6-7.

[78]ICA, Submission 11, p. [25]; Mrs Laura-Jo Mellan, Director Planning and Environment Services, Maribyrnong City Council, Committee Hansard, Maribyrnong, 17 April 2024, p. 6.; Mr Ray Hayek, Owner, Jubilee Vineyard Estate, Committee Hansard, Richmond, 9 May 2024, p. 19.

[79]ICA, Submission 11, p. [25].

[80]Meeting of National Cabinet, Media statement, 9 December 2022, www.pm.gov.au/media/meeting-national-cabinet-4.

[81]ICA, Submission 11, pp. [3], [27].

[82]Hollard Holdings Australia, Submission 19, p. 40.

[83]Mr Danny Rose, Acting Director Engineering, Tweed Shire Council, Committee Hansard, Lismore, 11 April 2024, p. 6.

[84]Mrs Rhonda Coghlan, Councillor, Cairns Regional Council, Committee Hansard, Cairns, 24 July 2024, p. 32.

[85]Mr Danny Rose, Acting Director Engineering, Tweed Shire Council, Committee Hansard, Lismore, 11 April 2024, p. 6

[86]Mr Bob Epps, Board Member, Cairns Chamber of Commerce, Committee Hansard, Cairns, 24 July 2024, p. 22.

[87]Youi, Submission 14, p. 27.

[88]Melbourne Water, ‘Flood maps’, https://letstalk.melbournewater.com.au/maribyrnong-river-flood-model/maribyrnong-river-flood-model-maps.

[89]Mr Steve Waters, Chief Executive Officer, City of Moreton Bay, Committee Hansard, Caboolture, 9 April 2022, p. 2.

[90]Mr Steve Waters, Chief Executive Officer, City of Moreton Bay, Committee Hansard, Caboolture, 9 April 2022, p. 2.

[91]Productivity Commission, Natural Disaster Funding Arrangements, No. 74, 17 December 2024.

[92]Productivity Commission, Natural Disaster Funding Arrangements, p. 9.

[93]Senator Hon Murray Watt, Minister for Emergency Management, ‘Disaster mitigation fund because law’, Media Release, 23 November 2022.

[94]Disaster Legal Help Victoria, Submission 7, p. 6; Legal Aid Queensland, Submission 8, p. 11

[95]City of Greater Bendigo, Submission 68, pp. [6-7].

[96]Ms Jacinta Redden, Chief Executive Officer, Advance Cairns, Committee Hansard, Cairns, 24 July 2024, p. 22.

[97]Insurance Australia Group, Submission 16, p. 7.

[98]Mr Steve Johnston, Group Chief Executive Officer and Managing Director, Suncorp Group, Committee Hansard, 5 February 2024, p. 22.

[99]Hawkesbury City Council, Submission 25, p. [2].

[100]Australian Sustainable Finance Institute, ‘Australian Sustainable Finance Roadmap’, 2020, https://www.asfi.org.au/roadmap.

[101]Actuaries Institute, Home Insurance Affordability and Home Loans at Risk Report, August 2024, pp. 23-26.

[102]Actuaries Institute, Home Insurance Affordability and Home Loans at Risk Report, August 2024, p. 25.

[103]Actuaries Institute, Home Insurance Affordability and Home Loans at Risk Report, August 2024, p. 25.

[104]World Bank and International Finance Corporation, Enabling Private Investment in Climate Adaptation & Resilience: Current Status, Barriers to Investment and Blueprint for Action, March 2021, p. 27.

[105]World Bank and International Finance Corporation, Enabling Private Investment in Climate Adaptation & Resilience: Current Status, Barriers to Investment and Blueprint for Action, March 2021, p. 5, 28

[106]Mr Gary Rake, Chief Executive Officer, Australian Building Codes Board, Committee Hansard, 30 July 2024, p. 9.

[107]Senator Hon Murray Watt, Minister for Emergency Management, Hon Ed Husic MP, Minister for Industry and Science and Hon Stephen Jones MP, Minister for Financial Services, ‘Building Ministers back greater climate resilience for Australian buildings’, Media Release, 24 July 2024.

[108]Mr Gary Rake, Chief Executive Officer, Australian Building Codes Board, Committee Hansard, 30 July 2024, p. 9.

[109]Mrs Karen Tiley-Takos, Chief Operating Officer, Standards Australia, Committee Hansard, 30 July 2024, p. 9.

[110]Indoor Air Quality Association of Australia, Submission 44, p. 5.

[111]Mr David Keane, Submission 33, p. [16].

[112]ICA, Submission 11, p. [27].

[113]Mr Gary Rake, Chief Executive Officer, Australian Building Codes Board, Committee Hansard, 30 July 2024, p. 10.

[114]Mrs Suzanne Smith, Executive Board Member, Australian Prudential Regulation Authority, Committee Hansard, 2 February 2024, pp. 21-22; Mr Richard Feledy, Managing Director, Allianz Australia Insurance Limited, Committee Hansard, 9 February 2024, p. 15; Councillor Steve Pickering, Councillor, Clarence Valley Council, Committee Hansard, Lismore, 11 April 2024, p. 2; Ms Venecia Wilson, Private capacity, Committee Hansard, Richmond, 9 May 2024, pp. 26-27; Mr Bob Epps, Board Member, Cairns Chamber of Commerce, Committee Hansard, Cairns, 24 July 2024, p. 22.

[115]Centre for International Economics, ‘Resilience, durability and the National Construction Code – Economic Analysis: Final report, Summary’, www.thecie.com.au/publications-archive/resilience-durability-and-the-national-construction-code, viewed 10 September 2024.

[116]Centre for International Economics, Resilience, durability and the National Construction Code – Economic Analysis: Final report, pp. 79-80.

[117]Mr Brian Joiner, Chief Executive Officer, Cook Shire Council, Committee Hansard, Cairns, 24 July 2024, p. 33.; Mrs Rhonda Coghlan, Councillor, Cairns Regional Council, Committee Hansard, Cairns, 24 July 2024, p. 33; Mr Paul Hoye, Acting Chief Executive Officer, Douglas Shire Council, Committee Hansard, Cairns, 24 July 2024, p. 33.

[118]Alicia Nally, et al. ABC News, ‘Building in floodplains is still not prohibited, Bulimba Barracks approved by Brisbane City Council’, www.abc.net.au/news/2022-11-09/building-brisbane-floodplains-not-prohibited-bulimba-barracks/101610574, 9 November 2022; Lucy Stone, ABC News, ‘Bulimba Barracks must be lifted above flood level, Shayher Group report says’, www.abc.net.au/news/2021-03-05/bulimba-barracks-development-moves-ahead/13221360, 5 March 2021.

[119]Richmond Valley Council, ‘Ordinary Council Meeting for 17 December 2019: Agenda’, https://richmondvalley.nsw.gov.au/wp-content/uploads/2019/12/CO_20191217_AGN_3127_AT.pdf, p. 12.

[120]Queensland Rural and Industry Development Authority, ‘Flooding disaster puts decades in business to the ultimate test’, https://www.qrida.qld.gov.au/client-story/flooding-disaster-puts-decades-business-ultimate-test.

[121]Mr Brian Joiner, Chief Executive Officer, Cook Shire Council, Committee Hansard, Cairns, 24 July 2024, p. 33.

[122]Australian Consumers Insurance Lobby, Submission 2, p. 4.

[123]Youi, Submission 14, pp. 27-28.

[124]Mr Peter Gartlan, National Coordinator, Financial Counselling Australia, Committee Hansard, 1 February 2024, p. 6.

[125]Australian Banking Association, Submission 71, p. 2.

[126]“Extreme pressure” is defined by the Institute as a household having to spend 4 weeks or more of gross income on insurance.

[127]Actuaries Institute, Home Insurance Affordability and Home Loans at Risk Report, August 2024, p. 22.

[128]Commonwealth Bank of Australia, Climate Report, 2023, www.commbank.com.au/content/dam/commbank-assets/investors/2023-08/climate/2023-climate-report-spreads.pdf, p. 46.

[129]Youi, Submission 14, p. 27.

[130]Mr Sam Kernaghan, Director of Resilience Program, Committee for Sydney, Committee Hansard, Parramatta, 10 May 2024, p. 24.

[131]Allianz Australia, Submission 13, p. 6.

[132]Ms Rebecca Maple, Risk and Assurance Adviser, City of Greater Bendigo, Committee Hansard, Heathcote, 19 April 2024, p. 2.

[133]Financial Counselling Victoria, Unsettled: Climate Risk and Cash Settlements in Home Insurance, August 2024, pp. 17, 39.

[134]Insurance Australia Group, Submission 16, p. 8.

[135]Insurance Australia Group, Submission 16, p. 8.

[136]Dr Helen Haines MP, Submission 4, pp. 3, 7.

[137]RACQ Group, Submission 15, p. 2.

[138]Suncorp Group, Submission 12, p. 38.

[139]Mr Ram Kangatharan, Group Managing Director and Chief Executive Officer, Auto & General Insurance Company Ltd, Committee Hansard, 22 March 2024, p. 21.

[140]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 11.

[141]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre, and Westjustice, Submission 27, p. 52.

[142]Royal Commission into National Natural Disaster Arrangements 2020, Report, 2020, p. 420; Mr Peter Sheath, Acting Unit Manager, Environmental Management, Central Coast Council, Committee Hansard, Parramatta, 10 May 2024, p. 11.

[143]Youi, Submission 14, p. 25; Suncorp Group, Submission 12, p. 39; Insurance Australia Group, Submission 16, p. 39.

[144]Royal Commission into National Natural Disaster Arrangements, Report, 2020, p. 420.

[145]Appendix C, Committee Survey Results.

[146]Mr Peter Sheath, Acting Unit Manager, Environmental Management, Central Coast Council, Committee Hansard, Parramatta, 10 May 2024, p. 11.

[147]Mr Scott Hinks, Private Capacity, Committee Hansard, Richmond, 9 May 2024, p. 22.

[148]Allianz Australia, Submission 13, p. 50; Hollard Holdings Australia, Submission 19, p. 44; Auto & General Holdings, Submission 18, p. 43.

[149]Mr Nick Hawkins, Managing Director and Chief Executive Officer, Insurance Australia Group, Committee Hansard, 5 February 2024, p. 40.

[150]Allianz Australia, Submission 13, p. 50; Hollard Holdings Australia, Submission 19, p. 44.

[151]Allianz Australia, Submission 13, p. 50; Hollard Holdings Australia, Submission 19, p. 44.

[152]Ms Katherine O’Regan, Head, Investment and Growth, Lismore City Council, Committee Hansard, Lismore, 11 April 2024, p. 8.

[153]Dr Helen Haines MP, Submission 4, p. 7.

[154]Mr David Carter, Managing Director and Group Chief Executive Officer, Royal Automobile Club of Queensland Limited, Committee Hansard, 9 February 2024, p. 13; Mr Paul Fahey, Chief Executive Officer, Hollard Insurance Company, Committee Hansard, 21 February 2024, p. 27; Auto & General Holdings, Submission 18, p. 45.

[155]Insurance Australia Group, Submission 16, pp. 32-33.

[156]Youi, Submission 14, pp. 24-25.

[157]Dr Jill Charker, Deputy Coordinator-General, Disaster Resilience and Recovery, National Emergency Management Agency, Committee Hansard, 15 March 2024, p. 30.

[158]National Emergency Management Agency, Submission 40, p. 4.

[159]Dr Jill Charker, Deputy Coordinator-General, Disaster Resilience and Recovery, National Emergency Management Agency, Committee Hansard, 15 March 2024, p. 29.

[160]Dr Jill Charker, Deputy Coordinator-General, Disaster Resilience and Recovery, National Emergency Management Agency, Committee Hansard, 15 March 2024, p. 29.

[161]National Emergency Management Agency, Submission 40, p. 4.

[162]Auto & General Holdings, Submission 18, pp. 44-45.

[163]Insurance Australia Group, Submission 16, p. 32.

[164]Insurance Australia Group, Submission 16, p. 32.

[165]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 77.

[166]Legal Aid New South Wales, Submission 34, p. 10; JLT Public Sector, Submission 30, p. 8; Mr Ross Contarino, Team Leader, Operations and Employment, Centacare Far North Queensland, Committee Hansard, Cairns, 24 July 2024, p. 13; Mrs Erin Easton, Second in Command, Family Support Worker and Community Connect Recovery Worker, Port Douglas Community Services Network, Committee Hansard, Cairns, 24 July 2024, p. 13; Ms Therese Maloney, Community Connect Worker, Mossman Support Services, Committee Hansard, Cairns, 24 July 2024, p. 13.

[167]Ms Louise Mitchell, Director, Community, Greater Shepparton City Council, Committee Hansard, Rochester, 18 April 2024, pp. 2, 8.

[168]Mr Shane Eberhardt, General Manager, Infrastructure and Assets, City of Launceston, Committee Hansard, Devonport, 17 July 2024, p. 10.

[169]Townsville City Council, Submission 84, p. 2.

[170]Mayor Sarah McMahon, Mayor, Mayor, Hawkesbury City Council, Committee Hansard, Richmond, 9 May 2024, p. 7.

[171]Suncorp Group, Submission 12, p. 19; Hollard Holdings Australia, Submission 19, p. 41.

[172]ICA, Submission 11, p. [27].

[173]Auto & General Holdings, Submission 18, p. 44.

[174]Insurance Australia Group, Submission 16, p. 20; Youi, Submission 14, p. 2.

[175]Allianz Australia, Submission 13, p. 21.

[176]QBE Insurance Group, Submission 17, p. 16.

[177]Mr Sam Kernaghan, Director of Resilience Program, Committee for Sydney, Committee Hansard, Parramatta, 10 May 2024, p. 18.

[178]Mr Sam Kernaghan, Director of Resilience Program, Committee for Sydney, Committee Hansard, Parramatta, 10 May 2024, p. 22.

[179]Ms Venecia Wilson, Private capacity, Committee Hansard, Richmond, 9 May 2024, p. 27.

[180]Mr Les Sheather, Private capacity, Committee Hansard, Richmond, 9 May 2024, p. 28.

[181]National Emergency Management Agency, Supplementary Submission 40.2, p. 3.

[182]Queensland Reconstruction Authority, Media release via Facebook on 24 June 2024.

[183]Australian Competition and Consumer Commission, Insurance monitoring:Second report following the introduction of a cyclone and cyclone-related flood damage reinsurance pool, December 2023,p. 15.

[184]Australian Reinsurance Pool Corporation, ‘Reinsuring terrorism and cyclones with ARPC’, https://arpc.gov.au/?page_id=88.

[185]Mr Robb Preston, Assistant Secretary, Banking, Insurance and Credit Branch, Department of the Treasury, Committee Hansard, 15 March 2024, p. 20.

[186]Terrorism and Cyclone Insurance Act 2003, s. 41.

[187]Allianz Australia, Submission 13, pp. 21-22.

[188]Australian Consumers Insurance Lobby, Submission 2, p. 6.

[189]Disaster Legal Help Victoria, Submission 7, p. 6.

[190]Ms Sharon Keith, Program Manager, Disaster Legal Help Victoria, Committee Hansard, 31 January 2024, p. 27.

[191]Ballina Shire Council, Submission 64, p. 3.

[192]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 62.

[193]Legal Aid Queensland, Submission 8, p. 11.

[194]Mr Paul Fahey, Chief Executive Officer, Hollard Insurance Company, Committee Hansard, 21 February 2024, p. 15.

[195]Mr Paul Fahey, Chief Executive Officer, Hollard Insurance Company, Committee Hansard, 21 February 2024, p. 21.

[196]Mr Richard Feledy, Managing Director, Allianz Australia Insurance Limited, Committee Hansard, 9 February 2024, pp. 17-18.

[197]Mr John Trowbridge, Submission 38, p. 2

[198]Natural Disaster Insurance Review, Inquiry into flood insurance and related matters, September 2011, pp. 37, 55.

[199]Natural Disaster Insurance Review, Inquiry into flood insurance and related matters, September 2011, p. 55.

[200]Natural Disaster Insurance Review, Inquiry into flood insurance and related matters, September 2011, p. 60.

[201]The review panel of the NDIR didn’t set a particular phase out period, but suggested it would likely be in the order of 20 years. See the discussion earlier in this chapter.

[202]Lloyd’s Australia, Submission 41, p. 3.

[203]Youi, Submission 14, p. 3.

[204]Mr Hawkins, Munich Re, Committee Hansard, 23 February 2024, p. 20; Mr Trent Thomson, Chief Executive Officer, Australia and New Zealand, Swiss Re Asia, Australia Branch, Committee Hansard, 15 March 2024, pp. 11-12.

[205]Productivity Commission, 5-year Productivity Inquiry report:Advancing Prosperity, 17 March 2023, p. 30.

[206]Actuaries Institute, Funding costs for Floods: Affordability, Availability and Public Policy Options, August 2023, www.actuaries.asn.au/docs/thought-leadership-reports/funding-costs-for-floods.pdf, p. 5.

[207]Mr John Trowbridge, Submission 38, p. 2

[208]Australian Reinsurance Pool Corporation, ‘The Cyclone Pool’, https://arpc.gov.au/?page_id=2265.

[209]Mr David Carter, Managing Director and Group Chief Executive Officer, Royal Automobile Club of Queensland Limited, Committee Hansard, 9 February 2024, pp. 7-8

[210]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 16.

[211]Joint Committee on Northern Australia, First Report on the Cyclone Reinsurance Pool, March 2023, pp. vii, 59.

[212]Swiss Re, Corporate Solutions, ‘What is Parametric insurance?’, https://corporatesolutions.swissre.com/insights/knowledge/what_is_parametric_insurance.html.

[213]Byron Bay Council, Submission 64, p. 9.

[214]Mr Matthew Williamson, President, Byron Bay Chamber of Commerce, Committee Hansard, Lismore, 11 April 2024, p. 17.

[215]Swiss Re, Submission 20, pp. 4-5.

[216]Mr Trent Thomson, Chief Executive Officer, Australia and New Zealand, Swiss Re Asia, Australia Branch, Committee Hansard, 15 March 2024, p. 10.

[217]Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre and Westjustice, Submission 27, p. 11.

[218]Mrs Julia Davis, Senior Policy and Communications Officer, Financial Rights Legal Centre, Committee Hansard, 31 January 2024, p. 12.

[219]Mr Ian Goninon, Chairman, Northern Midlands Business Association, Committee Hansard, Devonport, 17 July 2024, p. 19.

[220]Mr Matthew Williamson, President, Byron Bay Chamber of Commerce, Committee Hansard, 11 April 2024, p. 13.

[221]Mr Matthew Williamson, President, Byron Bay Chamber of Commerce, Committee Hansard, 11 April 2024, p. 13.

[222]Ms Katherine O’Regan, Head, Investment and Growth, Lismore City Council, Committee Hansard, 11 April 2024, pp. 7-8.

[223]Mr Paul Fahey, Chief Executive Officer, Hollard Insurance Company, Committee Hansard, 21 February 2024, p. 21.

[224]Allianz Australia, Submission 14, p. 11.

[225]Actuaries Institute, Funding Costs for Floods: Affordability, Availability and Public Policy Options, August 2023, p. 10.

[226]Actuaries Institute, Funding Costs for Floods, Affordability, Availability and Public Policy Options, August 2023, p. 5.

[227]Actuaries Institute, Funding Costs for Floods, Affordability, Availability and Public Policy Options, August 2023, p. 10.

[228]ICA, Submission 11, p. [28].

[229]Mr Andrew Hall, Chief Executive Officer, Climate, Operations and Strategy, Insurance Council of Australia, Committee Hansard, 5 February 2024, p. 2; ICA, Submission 11, p. [28].

[230]ICA, Submission 11, p. [28].

[231]Suncorp Group, Submission 12, p. 17.

[232]Allianz Australia, Submission 13, p. 19.

[233]Mr David Carter, Managing Director and Group Chief Executive Officer, Royal Automobile Club of Queensland Limited, Committee Hansard, 9 February 2024, p. 3.

[234]Youi, Submission 14, p. 2; Insurance Australia Group, Submission 16, p. 7, p. 42; QBE Insurance Group, Submission 17, p. 25; Auto & General Holdings, Submission 18, p. 43; Hollard Holdings Australia, Submission 19, p. 39; Australian Consumers Insurance Lobby, Submission 2, p. 5.

[235]NSW Government, ‘A fairer, more sustainable approach to funding our emergency services’, Media Release, 16 November 2023, www.nsw.gov.au/media-releases/emergency-services-funding.

[236]Australia's Future Tax System Review, Final Report, December 2009, https://treasury.gov.au/review/the-australias-future-tax-system-review/final-report, p. 12.

[237]Australia's Future Tax System Review, Final Report, December 2009, p. 58.