Chapter 4Other measures to address insurance availability and affordability in Northern Australia
4.1While the focus of this inquiry is the operation and the implementation of the Cyclone Reinsurance Pool, the committee learned during the course of the inquiry that broader conditions, including inflation and severe weather events, are increasing the cost of insurance premiums, thereby eroding or offsetting the benefits that many consumers expected would arise once their insurer joined the pool.
4.2Evidence pointed to the importance of other measures to address the issues of insurance availability and affordability. The success of the pool is interwoven with the success, or otherwise, of these measures. As such, the committee considered in detail:
the appropriateness of taxes applied to insurance premiums—namely, GST and stamp duty;
whether the Cyclone Reinsurance Pool should be expanded to cover flood more broadly, or whether Northern Australia needs a flood reinsurance pool to cover extreme rainfall events that do not meet the definition of a cyclone; and
mitigation and resilience measures, including whether existing programs funded by the Australian Government are sufficient, and whether insurers are passing on premium decreases in response to mitigation and resilience measures that consumers carry out at the household and business level.
How to improve insurance affordability
4.3Typically, measures to improve the affordability of insurance can be grouped into three categories:
cost-sharing, with all households contributing and lower-risk households cross-subsidising costs for higher risk households, as is the case with the Cyclone Reinsurance Pool;
risk reduction through mitigation and resilience measures, which reduce or shift the cost of premiums, and other measures to remove risk entirely, such as government-funded buyback programs to encourage residents to move from high-risk areas; and
government-funded measures, including subsidies and tax reforms.
4.4Of the above measures, the general consensus is that risk reduction has the most meaningful, long-term impact for policy holders, but it may not always be possible, can be very expensive and may not immediately reduce the cost of insurance premiums. As such, policy-makers also typically consider cost sharing and government-funded measures.
4.5As noted above, the pool is an example of a cost sharing method. However, according to the Insurance Council of Australia, the ‘pool is not a long-term solution to managing risk and reducing upward pressure on insurance premiums … The best way to address affordability problems is to reduce the risk in Northern Australia … through resilience and mitigation investment’.
4.6Similarly, Insurance Australia Group acknowledged that ‘while reducing the cost of reinsurance is an important measure, the key lever is reducing or mitigating the level of risk faced by people and communities from severe weather’. Insurance Australia Group argued that reducing ‘risk protects lives, property and infrastructure and has a flow-on effect of reducing premiums’.
4.7At the April 2024 hearing, the Royal Automobile Club of Queensland (RACQ) suggested that ‘the pool needs to further improve’ to ‘increase competition in North Queensland or Northern Australia and to lower the premiums for the sums insured’. RACQ argued that it is ‘very hard to achieve significant dollar savings in total premiums without finding a way to subsidise, on average’.
4.8The Australian Competition & Consumer Commission (ACCC) told the committee in February 2025 that ‘the pool alone will not solve the very acute insurance affordability challenges facing some people in northern Australia’. The ACCC outlined areas of reform from their Northern Australia Insurance Inquiry that they considered could address the related issues of insurance affordability, under-insurance and non-insurance, including measures to:
make it easier for consumers to search for and compare products;
make it easier for consumers to choose the appropriate amount of cover for their property;
address conflicts of interest in the insurance market;
improve consumers’ rights; and
reduce risk and build better homes.
4.9In that report, the ACCC stated that they did ‘not consider government reinsurance pools or government insurers are well-suited to address affordability concerns in a targeted way’. Instead, the ACCC argued that reforms to stamp duty ‘have the potential to immediately relieve pricing pressure for all consumers in Northern Australia’. The ACCC proposed that the governments of Western Australia, the Northern Territory and Queensland levy stamp duties for home, contents and strata insurance with reference to the sum insured value, rather than the premium level. In addition, the ACCC proposed that part of the revenue collected from stamp duty be directed towards measures that would improve affordability for low-income consumers, or to fund mitigation works. Both of these proposals are addressed in further detail below.
4.10The ACCC further proposed that governments consider direct subsidies based on premium level and income eligibility requirements over other measures if they wish to provide immediate relief to consumers.
4.11The ACCC also recommended that the Insurance Council of Australia work with the Australian Securities and Investments Commission (ASIC) to obtain ASIC approval for the General Insurance Code of Practice. Of note, the Insurance Council indicated to the House of Representatives Standing Committee on Economics in their 2023–2024 inquiry into insurers’ responses to 2022 major flood claims that they intend to register the Code with ASIC. That committee also recommended that the Insurance Council seek to have ASIC approve the Code after the Insurance Council has implemented relevant recommendations of the Independent Review of the 2020 General Insurance Code of Practice.
Reforms to tax settings
4.12GST is applied to ten per cent of an insurance premium nationally. In addition, all states and territories impose stamp duty on insurance premiums except the Australian Capital Territory. In Queensland, for example, stamp duty of nine per cent is charged on both the premium and GST attached to the premium of home and contents insurance policies.
4.13In short, this means that when the cost of insurance premiums for consumers increases, the combined tax and duty applied to those premiums also increases, leading to a higher premium cost for consumers (in Queensland, around one-fifth of the total cost they pay for their premium) and greater revenue for governments.
4.14Insurers at the February 2025 hearing were united in their calls for reduced taxes on insurance premiums.
4.15RACQ noted that ‘Northern Queensland is paying 50 per cent more in premiums [compared to the whole-of-Queensland average] and being charged higher taxes, but has lower sums insured’. RACQ proposed at the April 2024 hearing that governments remove GST and stamp duty on insurance policies for owner-occupied residential properties in North Queensland, thereby reducing the gap in premium costs between North Queensland and the rest of the state.
4.16On the matter of stamp duty, Sure Insurance suggested that the stamp duty formula be calculated on the basis of the sum insured (or the value of the home), rather than the cost of the premiums, noting that ‘much higher premiums are often associated not necessarily with high-value homes but with high-risk homes’. They argued that this would reflect how stamp duty on insurance was calculated in the Queensland market previously, which was based on the insured amount for the home rather than the cost of the premium.
4.17Other witnesses called for the money generated by taxes on insurance premiums to be used to fund mitigation and resilience programs. This evidence is discussed later in this chapter.
4.18Tax reform to improve insurance affordability is not a new area of discussion. For example, the Senate Economics Legislation Committee, in its inquiry into the bill that established the Cyclone Reinsurance Pool, received evidence calling for tax reform on insurance premiums.
4.19As noted above, the ACCC in their Northern Australia Insurance Inquiry proposed that the governments of Western Australia, the Northern Territory and Queensland levy stamp duties for home, contents and strata insurance with reference to the sum insured value, rather than the premium level.
4.20The House Standing Committee on Economics in its report on the Inquiry into Insurers’ Responses to 2022 Major Floods Claims recommended that ‘state and territory governments remove state-based taxes on general insurance products and shift the tax burden toward less distortionary taxes’. It also recommended that in this event, insurers commit to passing these savings on in full to consumers through lower premiums.
Establishment of a flood reinsurance pool
4.21Related to the 48-hour rule was the extent to which policy-holders are covered for flood damage caused by an initial cyclone that has been subsequently downgraded, and flood damage caused by separate lows that are not declared cyclone events. Committee members questioned witnesses closely at the April 2024 hearing and the February 2025 hearing about whether the pool should be expanded to cover floods, or whether another mechanism should be introduced, separate to the Cyclone Reinsurance Pool, to address the issue of increased insurance premiums arising because of flooding caused by lows in Northern Australia.
4.22Some evidence raised concerns about the level of flood cover in Australia, with RACQ informing the committee that flood insurance is becoming quite expensive for over a million households in Australia, or 12 per cent of households. RACQ suggested that Australia could see a similar situation to the west coast of the United States of America (USA), where insurance companies refused to renew millions of policies for fire insurance in areas at high risk for wildfires, and the state has provided a last-resort insurance program with premiums costing more than the private market and providing less coverage.
4.23The Insurance Council stated that one of the key issues with insurance that covers flooding is that homes in flood zones are largely in lower socio-economic areas, with ‘a very large percentage of people that are already living below the poverty line, and they’ve got very low insurance penetration because they can’t afford it’. The Insurance Council considered that ‘we’re at a tipping point in Australia, where we have an option of going down the path’ of a flood pool ‘and spending billions of dollars covering flood risk’, arguing that this will be ‘taxpayer dollars, and people who don’t live in flood zones would be covering it. Or we start making some hard decisions around land use planning and spending that money instead on flood mitigation’.
4.24QBE noted there is ‘complexity’ to the question of whether to expand the Cyclone Reinsurance Pool to floods, telling the committee that for around ‘six per cent of properties that have a material exposure to flood broadly across Australia, there would be many questions and much analysis’ needed to answer the question of what the risks are and what ‘would be the most appropriate and effective funding mechanism’ . They considered that ‘mitigation will ultimately remain the best solution’, particularly ‘to keep those communities and families out of harm’s way’.
4.25Suncorp considered that the evidence does not support expanding the Cyclone Reinsurance Pool to cover flood in general ‘because flood is clearly a national exposure rather than a northern Australia exposure’. They further noted that ‘an exposure of the government’s balance sheet to risk would be substantially greater for a flood than it would be for just a cyclone’.
4.26Sure Insurance proposed that the government give consideration to establishing a high-risk reinsurance pool for floods, given that not all major flooding events in Northern Australia are caused by cyclones or ex-tropical cyclones. They noted that in many instances, quotes of high premiums to customers are ‘because of their extreme flood risk, not necessarily their extreme cyclone risk’, acknowledging that there is a percentage of people in this group who are not insured because they cannot afford the premium costs.
4.27RACQ considered it ‘inevitable a flood pool will be required if the predictions about where the weather is headed come true’. However, they were of the view that ‘at the moment … the first and best and most important thing we can all do is improve resilience … We can’t change the weather, but what can we do to prevent people suffering the damage in the first place?’ RACQ argued that without appropriate resilience measures, ‘a pool will probably become a necessary solution’. RACQ considered that such a pool, if designed like the Cyclone Reinsurance Pool, would see limited benefits in premiums, though likely improve competition and the accessibility of insurance.
4.28At the hearing in April 2024, the Australian Consumers Insurance Lobby proposed a national pool covering terrorism, cyclone and flood. However, their chairperson emphasised the importance of the current ‘pool working … [G]et this right for cyclone and then explore the issue of flood at a later date. But, right now, we don’t think the pool on the cyclone issue is working in its best capacity. It really just needs some tweaking ….’
4.29The Actuaries Institute, in an analysis on policy options to address flood insurance unaffordability, suggested that flood risk ‘is highly localised and disproportionately affects a relatively small number of households’, who often experience affordability pressures. Conversely, cyclone risk tends to be more geographically widespread without differentiation between lower or higher socio-economic areas.
4.30Further, most policyholders who have little or no flood risk pay no flood premium. The Actuaries Institute argued that if a flood pool only shared risk between policy holders who have meaningful exposure to flood risk, and therefore pay part of their premium to cover for flood risk, such a small group would be unlikely to significantly improve affordability given its size. However, the Institute did acknowledge that ‘Australian homeowners may be willing to accept some level of cross-subsidy and community rating, particularly if it is temporary in nature’, given there is precedent for similar aspects in other schemes, such as Compulsory Third Party motor insurance and private health insurance.
4.31Nonetheless, the Actuaries Institute was of the view that if flood was included in the pool, the capital cost savings from the low-risk households would be a fraction of the total premiums from low and medium flood risk households, and therefore grossly insufficient to meaningfully reduce premiums for all households with high flood premiums. In particular, the Actuaries Institute suggested that:
… if the 171,000 high flood risk and affordability stressed households with a total estimated flood premium of $1.5 billion per annum (after allowing for the impact of the existing Cyclone Pool) were to be fully insured, each of these households would have to pay an average flood risk premium of $8,800. This is likely to be considered unaffordable by many. The cross-subsidy required to reduce this to an affordable level will therefore be very high.
4.32The Actuaries Institute noted that if a multi-peril pool were considered to cover flood and other disasters, such as bushfires and cyclone, it:
… could also be more equitable if it is considered households facing high insurance affordability stress should be protected irrespective of the type of peril they face. While this would broaden the coverage and increase the cost of the pool, the benefits, as well as the costs, would be more widely shared. In addition, a multi-peril pool could derive diversification benefit across coverage of different perils compared to the aggregate cost of multiple single-peril pools.
Views of other parliamentary committees on a flood reinsurance pool
4.33This is not the only recent inquiry to receive evidence calling for the expansion of the Cyclone Reinsurance Pool to cover other disasters.
4.34For example, the Senate Select Committee on the Impact of Climate Risk on Insurance Premiums and Availability, in its final report tabled in November 2024, ‘heard from a wide range of stakeholders who support[ed] the expansion of an improved reinsurance pool to cover other regions and types of disasters’.
4.35The House of Representatives Economics Standing Committee (Committee on Economics) undertook an inquiry into insurers’ responses to the 2022 major flood claims. The inquiry’s October 2024 report, Flood failure to future fairness, noted that many inquiry participants supported further investigation into the feasibility of a reinsurance pool for flood, including the Australian Insurance Consumers Lobby, Disaster Legal Help Victoria, Ballina Shire Council, Financial Rights Legal Centre, CHOICE, Consumer Action Law Centre, Westjustice, and Legal Aid Queensland.
4.36The report noted advice from the Productivity Commission that Australian governments should ‘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’.
4.37However, ultimately the Committee on Economics found that ‘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’. Because of this, the committee was of the view that ‘government intervention may be necessary to improve the affordability of flood insurance’ as long as the interventions occur where ‘accompanying policy measures limit and, over time, reduce the underlying risk’.
4.38The Committee on Economics recommended the Australian Government consider ‘the appropriateness of a government supported reinsurance arrangement’ for flood insurance, based on the following principles (among others):
Flood insurance should be available to all Australian homeowners and body corporate lot owners at an affordable price, with conditions.
Any scheme involving public funding devoted to a reinsurance pool or subsidies should be phased out over time, in accordance with ongoing investment in mitigation to reduce the underlying risk.
Federal and state governments should commit to ongoing investment in community mitigation, including a guaranteed minimum annual investment level and the development of rigorous business cases.
Households and small businesses should be provided with information on mitigation options and their premiums should be reduced immediately when they undertake such mitigation.
4.39That inquiry received evidence from Allianz on the forms a national flood reinsurance facility could take, including the possibility of expanding the Cyclone Reinsurance Pool to include cover for all high-risk flood nationally. The report examined views on whether the pool should only cover existing properties, or just properties within areas of coverage, to incentivise property development only in areas that are not at high risk of flooding. Of note, however, insurers and reinsurers who gave evidence to that inquiry were not in favour of government intervention to reduce premiums if this reduction was not driven primarily by efforts to reduce risks, such as through mitigation. Several global reinsurance providers considered premium reductions should only eventuate if such a pool was set up to put pressure on risk reduction.
4.40Of relevance to this inquiry, the Committee on Economics in its report also recommended:
the Australian Government move towards a national, centralised, public-facing portal containing flood risk data at the household level for all households and small businesses, all land being considered for release for development, and land already released but not yet developed;
the Australian Government commission research into effective ways of communicating flood risk to communities;
the Australian Government investigate the advantages and risks of enabling access to the Home Equity Access Scheme for resilience improvements by people who cannot afford or access flood cover;
the Australian Government ensure funding of at least $200 million per year ongoing for community level mitigation;
a climate financing framework be developed for government mitigation and adaptation funding, to create incentives for public sector and private sector investment in mitigation and resilience;
the General Insurance Code of Practice be amended to require insurers to consider relevant property-level mitigation measures in new or renewing insurance policies and to demonstrate how the proposed premium reasonably reflects those measures, with the Code to be registered with ASIC and the Treasurer to direct a regulator to review insurers’ compliance with this clause; and
state and territory governments develop buyback and resilience programs for households with very high flood risk where alternative mitigation measures are unlikely to manage the risk, with the Australian Government to consider working with the state and territory governments, including through co-funding models.
4.41The Australian Government has not yet provided a formal response to that report.
Overseas experiences of a flood pool
4.42In considering the merits of a flood pool and whether the Cyclone Reinsurance Pool should be expanded to cover flood risks, Australia could look to the experiences of government intervention in flood markets overseas, notably in the United Kingdom (UK) and the United States of America (USA).
4.43The UK Flood Re Scheme raises £135m every year by requiring every insurer that offers home insurance in the UK to pay into the scheme, which then covers the flood risks in home insurance policies. The scheme operates behind the scenes, where insurers can choose to pass the flood risk element of an individual policy to the scheme for a fixed price. When a valid claim for flooding is made by a consumer, the insurer pays the claim and then seeks reimbursement from the Flood Re fund.
4.44The overall purpose of the scheme is to ‘promote the availability and affordability of household insurance for those most at risk of flooding’ and ‘manage, over its 25-year lifetime, the transition of the market to risk reflective pricing for home insurance for these households’. Notably, this scheme is not intended to be permanent and has a 25 year lifespan.
4.45The second five-year (quinquennial) review of the scheme, released in July 2024, found that the scheme overall ‘has continued to serve its purpose very well and is continuing to meet its statutory objectives’.
4.46Flood Re Scheme has a Build Back Better (BBB) program which reimburses insurers for costs relating to claims for repairs up to a value of £10 000 above the cost of like-for-like replacement. The intention of the program is to incentivise the uptake of property level flood resilience and adaptation measures.
4.47The scheme is seeing increasing uptake by households. Around one-third of claims submitted to Flood Re for three UK storms in 2023–24 included BBB provisions, though BBB usage varied significantly among insurers, ranging from 4 to 56 per cent.
4.48The Insurance Council noted that the UK consumer base is around 60 million people, while in Australia the consumer base is around eight or nine million people. However, the Insurance Council indicated that the number of homes eligible at high risk of flood would be around the same, meaning an Australian flood pool would ‘have a much, much higher cost base to cover [a pool] than the UK does. They’re the sorts of design choices governments will have to weigh up, because ultimately it will invariably cost people who don’t live in flood zones a lot of money’. Even so, the Insurance Council was in favour of the following elements of Flood Re:
Its time limited nature.
No new properties can enter the scheme.
It is designed to reinvest in resilience and mitigation and then sunset.
4.49The USA has the National Flood Insurance Program (NFIP), which is managed by the Federal Emergency Management Agency (FEMA) and is delivered to the public by a network of more than 50 insurance companies and the NFIP Direct. Through the NFIP, flood insurance is available to anyone living in one of the almost 23 000 participating NFIP communities.
4.50A report published in a US economic journal found that since the creation of the NFIP, the US government paid out over US$51 billion to cover flood losses, with almost half of these payouts going to just 25 counties, which are also among the fastest growing counties by population. The report ultimately concluded:
Our findings show that population increases in flood-prone areas as a direct response to community enrollment into the NFIP. Moreover, we provide evidence of induced risk taking by demonstrating that the NFIP causes larger population increases in historically riskier areas. Thus, our findings suggest that the private benefit households receive in the form of a reduction in potential risks produces adverse behavior, imposing significant external costs.
4.51It should be noted that according to the Insurance Council, ‘the US will give you plenty of examples of what you should never do. In the general insurance market now, because of interventions like pools and the rest, most major insurers in California, because of wildfire and flood risk, are no longer writing new policies’. In particular, the Insurance Council argued that US schemes have functioned as ‘a Trojan Horse for developers’ to continue development in high-risk areas.
Mitigation and resilience measures
4.52The committee heard that mitigation and resilience are the number one factor, over the long-term, to reducing the cost of insurance. QBE Insurance, for example, stressed the importance of reducing, not masking, underlying risk ‘so that the impacts of natural disasters are lessened’.
4.53Around 97 per cent of disaster funding is after an event. As the Insurance Council noted at the April 2024 hearing, ‘there is no better claim than the one that doesn’t need to happen’.
4.54Governments in Australia have recognised the importance of resilience and mitigation and provided funding for programs to address these areas. These programs include:
the Disaster Ready Fund;
the Hazards Insurance Partnership and Strategic Insurance Projects;
the Insurance Affordability and Natural Hazards Risk Reduction Taskforce;
the Resilient Homes Fund; and
the Strata Resilience Program.
Disaster Ready Fund
4.55The Australian Government has provided up to a billion dollars through the Disaster Ready Fund, over five years from 1 July 2023. Projects funded through the Disaster Ready Fund address the physical and social impacts of disasters caused by climate change and other natural hazards on communities. The Fund is co-administered with state and territory government agencies responsible for emergency management. Co-contributions are required, either by the agency, the applicant or the delivery partners.
4.56While supportive of the Disaster Ready Fund, Insurance Australia Group’s position was that the Disaster Ready Fund be ‘a 10-year rolling program’, noting that relocation of residents living in legacy homes in flood areas would require a multi-billion dollar program over a long period of time.
Hazards Insurance Partnership and Strategic Insurance Projects
4.57The Australian Government has allocated $22.6 million over four years through the Hazards Insurance Partnership and Strategic Insurance Projects to identify where insurance is an issue in high-risk areas, and develop policy solutions to reduce both risk and cost. The Hazards Insurance Partnership brings the Australian Government and the insurance industry together to discuss how to lower risk and better ways to collect and share information, while the Strategic Insurance Projects include:
creating a national library of actions individuals and communities can take to reduce their risks;
exploring public-private partnerships to incentivise and deliver risk-reduction initiatives;
collecting information about insurance affordability and under-insurance; and
reviewing standard insurance cover and definitions.
4.58Material produced by the Hazards Insurance Partnership include a booklet on making homes storm and cyclone resilient with suggestions, along with estimated cost, covering areas such as:
roof reinforcements, using a hip roof design with appropriate pitch, strong tie-downs and cyclone-related materials;
impact-resistant windows, using laminated glass windows or storm shutters;
reinforced garage doors to withstand high wind pressures; and
cyclone ties, bolts and straps to connect roofs to walls, walls to floors and floors to foundations.
4.59The booklet also suggests that policy-holders ask their insurer how the Cyclone Reinsurance Pool affects their insurance, how their insurer defines ‘storm damage’, what additional coverage options are available for cyclone-related flood protection, and how the policy-holder can reduce their premiums by making their home more resilient to storms and cyclones. The booklet provides advice to policy-holders on what to check is included in their policy, such as whether:
the sum insured is sufficient to rebuild their home and replace all contents;
the policy provides for temporary accommodation in the event a home is uninhabitable; and
the policy has an ‘averaging’ or co-insurance’ clause, as these terms may reduce a payout if the policy-holder is under-insured.
Insurance Affordability and Natural Hazards Risk Reduction Taskforce
4.60The Australian Government announced in May 2024 that it would establish the Insurance Affordability and Natural Hazards Risk Reduction Taskforce ‘to develop an integrated, cross-government approach to minimising the impacts of disaster on the community and help address insurance costs driven by more frequent and intense weather events’. Issues the Taskforce is examining include:
community-level risk reduction;
hazard risk reduction;
economic impacts of underinsurance;
standardising natural hazard definitions; and
other near-term solutions to improve affordability.
Resilient Homes Fund
4.61The Queensland and Australian Governments’ Resilient Home Fund (the fund) comprised $741 million of funding to repair (enhance resilience), raise, demolish and rebuild homes impacted by the 2021–2022 flood event across 39 local government areas in Queensland. It also offered voluntary home buy-backs for the most impacted or high-risk homes. The fund provided financial assistance to:
incorporate flood resilient design and materials in liveable rooms or areas;
raise or relocate services essential to the continued liveability of the home;
raise a home to reduce the impacts of future flood events; or
demolish and rebuild or relocate a home above the assessed flood level and 2021–2022 flood event level.
4.62RACQ provided the committee with an example of how the Resilient Homes Fund had led to improved resilience:
The Resilient Homes Fund has allowed us, in areas of South-East Queensland, with support from government funding, when we go back and do those claims to spend that extra money to lift those power points up to a place where it's less likely, the next time that property floods—hopefully, it won't, but next time—they won't have such a significant experience. They won't have to strip it all out.
4.63Suncorp and QBE expressed their support for the proposal that the Resilient Homes Program be continued and provide support on an ongoing, rather than a one-off, basis.
4.64Allianz also stated that they ‘would fully support the extension of programs’ similar to the Resilient Homes Fund ‘across the whole of Australia, on an ongoing basis’.
Strata Resilience Program
4.65The Strata Resilience Program (Strata program) was similarly funded by the Queensland and Australian Governments ‘in the area from 100 kilometres of the coastline from Rockhampton, north to the Torres Strait and west to the Queensland/Northern Territory border – to improve the resilience of … strata properties against cyclones’. The Strata program provided funding of 75 per cent of the costs of approved eligible resilience strategies, up to $15 000 per residential tenancy to a maximum grant value of $150 000 per body corporate. Funding could cover resilience upgrades including:
roof upgrades;
window protection;
external solid core doors;
garage doors;
box gutter overflows;
old style louvres; and
cyclone preparedness planning.
Evidence to this inquiry on mitigation and resilience
4.66In January 2024, the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP, stated that in 2023 he had a conversation with global insurers about how Australia could avoid market failure. According to the Assistant Treasurer, their advice was that Australia has ‘five years, it’s about mitigation, which is about firming up your infrastructure, ensuring that your houses are built to better standards’ and development approvals are not granted for high-risk areas.
4.67Insurers at the 7 February 2025 hearing were all in favour of increased mitigation. For example, the Insurance Council argued that the pool ‘works best in concert with policies that reduce risk, such as programs to support household resilience to cyclones’.
4.68RACQ informed the committee that the ‘preferred course’ to reduce the cost of insurance ‘remains eliminating the social and economic cost of flooding by taking as much risk out of the system as possible’. RACQ was of the view that progress ‘by all levels of government on prevention and resilience has been inadequate to date’.
4.69Sure Insurance informed the committee that because of improvements to building standards, ‘a large stock of homes out there’ have been subject to significantly more damage than newer homes:
… in previous cyclones we have seen the damage ratio between pre- and post-1982 constructed homes – that is, homes with or without cyclone standards – being a factor of four to one. A pre-1982 home will incur four times the amount of damage of that of a post-1982 claim in some cyclones.
4.70The Insurance Council argued that for the pool to be more effective, ‘there needs to be a clear link reducing risk through increased investment in resilience and mitigation’, arguing that:
… public reinsurance pools established without any link to mitigation and resilience measures only serve to mask risk, placing more people in harm's way and increasing exposure in the long term. This ultimately builds a growing problem for governments and communities down the track, as we've seen in other markets like the US.
4.71Policy solutions to improve resilience and mitigation that the Insurance Council pointed to included:
better land use planning;
better building standards;
investment in community mitigation infrastructure; and
household-level risk mitigation.
Funding government resilience and mitigation programs
4.72As outlined below, proposals that witnesses put forward to increase mitigation and resilience included:
the Australian Government providing incentives for other levels of government to increase uptake of resilience and mitigation;
using tax collected on insurance premiums to fund mitigation programs; and
using the pool’s surplus to fund resilience and mitigation programs.
4.73The Insurance Council suggested that particular ‘mitigation measures that do have a significant return on investment … are just not being funded’. They argued that ‘year on year, state governments are collecting near on $7 billion in stamp duty’. However, we ‘are not seeing $7 billion go back into resilience and mitigation measures in this country’. The Insurance Council proposed that the Australian Government should provide money for local councils to work on the transition to more resilient homes, arguing:
I think what we’ve got to do is incentivise local councils to have a plan on how to do managed buybacks so that residents that haven’t moved aren’t left living in suboptimal conditions … [A]ll of this needs to be linked with the plan that, while insurance affordability and availability is important, living in a safe home is what really matters. If you’re living in a home that’s got a 41 per cent chance of fully flooding in the next 10 years and government knows it, I think it’s incumbent on government to help those people find a way out of that….
4.74The Insurance Council suggested that state governments are currently not incentivised to address disaster resilience, arguing that the Commonwealth is:
… the insurer of last resort. When these major floods and disasters happen, the Commonwealth is often called upon. It's the first to put its hand in its pocket to provide the Army and to provide all of the other things on top of the state emergency response. Once it goes over a certain amount, like we saw with the Resilient Homes Fund, it's the Commonwealth taxpayer who is paying for the buybacks, who is paying for the house razings. There needs to be a really thorough examination of Commonwealth-state financial relations to try to either incentivise the states to put more money into preparing communities against natural disaster or for the Commonwealth to take it all on and deal with it. But we're in this problem where three levels of government are involved and one level of government is receiving all the revenue—that's the middle level—and the top level of government is left to pick up the bill.
4.75Sure Insurance argued that retrofitting older homes to cyclone standards, particularly subsiding the cost of roof replacement, would have a considerable impact on their risk profiles. Sure Insurance called for money for mitigation in this area, suggesting the surplus from the pool could be used to this effect, as well as stamp duty.
4.76The proposal that the pool’s surplus could be used to fund particular mitigation measures is discussed separately below.
4.77RACQ proposed that a ‘significant proportion of GST and stamp duty on premiums, particularly in northern Australia but also in flood-prone areas more broadly in Australia’, be put ‘into resilient homes funds’. They also expressed support for the proposal that the money generated from GST and stamp duty be used for broader mitigation efforts.
4.78The Australian Consumers Insurance Lobby (ACIL) considered that ‘there is enough evidence now’ to show that mitigation ‘will reduce claims in the Cyclone Reinsurance Pool’ and ‘it’s time to now just do the implementation and actually make buildings resilient’. However, they also called for an actuarial report to conduct a cost-benefit analysis of mitigation, arguing that ‘it is important … as policymakers, to know what the costs and benefits of any mitigation are, because there’s no point spending money if you’re not going to get a return’.
4.79The ACIL also agreed with the proposal of an ongoing program to make homes more resilient, suggesting that such a program be funded in part through premiums collected through the pool (below), and through stamp duty revenue collected by state governments.
4.80The ARPC advised the committee that risk mitigation is a ‘key focus area’ for them. Further, the ‘total discount for mitigation applied to in-force home insurance premiums as at 31 March 2024 was $5.8 million, and ARPC will pursue further initiatives to improve take-up rates’.
4.81The ARPC reported in April 2024 that its premium formula provides discounts for the following mitigation measures:
Roller door bracing (for properties built before 2012).
Window protection measures.
Tied down roof.
New/replaced roof (for properties built before 1982).
Elevated ground floor.
4.82At that time, ‘a small proportion of Home Buildings reinsured by the cyclone pool have completed mitigation and are accessing the cyclone pool premium discount allowances’. The ARPC expected ‘these figures to increase as insurers adjust their underwriting approaches and as policyholders are incentivised by cyclone pool premiums to implement mitigation measures’.
Using the pool’s surplus to fund mitigation and resilience measures
4.83As noted above, some witnesses called for the pool’s surplus to be used to fund mitigation and resilience measures, while others urged caution.
4.84For example, the Australian Consumers Insurance Lobby called for the pool’s reserves, once they have reached ‘sufficient levels to sustainably cover claims’, to be used to:
reduce premiums; and
invest in community resilience measures, such as roof strengthening, debris management and securing outdoor structures.
4.85The ACCC has also previously proposed that part of the revenue collected from stamp duty be directed towards measures that would improve affordability for low-income consumers, or to fund mitigation works.
4.86The Insurance Council considered that the pool should have been designed so that ‘in surplus years, money goes into a mitigation fund that people can apply for to have their home strengthened’. They did note, however, the need for the pool to build up reserves ‘because we will have a $10 billion event one day’.
4.87RACQ was cautious about the possibility of using the pool’s surplus to fund subsidies to reduce premium costs, suggesting that ‘if you get to a place where, over a five-to-10 year period, there are surplus funds then, yes, it would make sense to use those funds to drop the premiums’. However, it considered that the pool ‘may not be able to generate that sort of surplus’, given recent cyclones were relatively small.
4.88The ARPC informed the committee that there are years where it will have surpluses and years where there are large deficits, with most years over a five year period expected to be in surplus, ‘but one year in every five years will be very, very large in deficit – in the order of billions of dollars’. The ARPC is ‘saving funds for the big loss event, which we haven’t had yet’.