The front line of the climate emergency
This bill is the front line of the climate emergency. Tens of thousands of homeowners and businesses can no longer afford to insure their property because cyclones are becoming more intense and causing more damage as a result of climate change.
Instead of responding to the climate emergency in an urgent and holistic way, this bill demonstrates how hypocritical and artificial this government is. The Liberal-National Coalition has spent eight years hastening the breakdown of the climate, including by providing billions of dollars in subsidies every year to the coal, oil and gas companies who are responsible for the problem. They have also done next to nothing to prepare the nation for the impacts of climate change, which can be explained by the refusal of many Ministers to acknowledge the existence of human induced climate change.
Now, in the face of skyrocketing insurance costs that are clearly the result of the climate breaking down, they have introduced this bill to nationalise reinsurance for cyclone and flood damage to residential and business properties. But of course, it's half-cooked. Undoubtedly, no-one has felt the impact of the climate emergency on their insurance premiums more than residents and businesses in cyclone affected areas. However, as the recent floods in Queensland and New South Wales (NSW) have demonstrated, climate change is already severely affecting the insurability of many other parts of the country.
Yet this bill will provide no support for those in Queensland and NSW who have just seen the value of their properties deteriorate because of a dramatic increase in insurance costs that will follow from the recent floods.
This bill is out-of-date before it has even been legislated. In fact, under the government’s plan, people in Queensland and NSW who have just been hit by floods will, along with the rest of the country, start underwriting insurance for those living in cyclone prone areas.
Further, this bill is not accompanied by a coherent strategy or serious money to help communities better protect themselves against the impacts of the climate emergency. Insurers, regulators, and academics have been saying for years—and reiterated during this inquiry—that this is of paramount importance. Only 3% of government spending on climate disasters in Australia goes towards mitigation and prevention. This bill provides more of the cure. But where is the prevention?
A government reinsurance pool should cover all climate disasters across the whole country, and not just those particular to northern Australia. As well as ensuring that all Australian's enjoy the cost savings of a government scheme, a fully national scheme would make it in the government's direct interest to invest in the public works that are desperately needed to help keep insurance costs down in the first place.
The Greens will be seeking the Senate's support for amendments that would immediately expand the scope of the bill to cover all flood damage so that people in Queensland and NSW who have recently been flooded will be provided with immediate support. We will also be seeking the Senate's support for amendments that would ensure that the next parliament considers the full nationalisation of reinsurance for climate disasters.
The Greens will also move amendments requesting that taxes be levied on fossil fuel companies to cover the establishment and maintenance of the $10 billion government guarantee. These are the companies that are reaping mega profits creating the climate emergency. They should be made to pay for having made insurance unaffordable for many people.
Recommendation 1
That the scope of damage covered by the Australian Reinsurance Pool Corporation (APRC) immediately be expanded to include all flood damage to residential and small business property.
Recommendation 2
That the scope of damage covered by the ARPC immediately be expanded to include all damage to motor vehicles associated with damage to residential and small business property resulting from cyclones and floods.
Recommendation 3
That the scope of damage covered by the ARPC eventually be expanded to include all damage to residential and small business property resulting from climatic events.
Recommendation 4
That the statutory review of the APRC specifically examine the expansion of the scope of damage covered by the APRC to include all damage to residential and small business property resulting from climatic events.
Recommendation 5
That money required to establish and maintain the reinsurance pool be backed by taxation on entities extracting and combusting fossil fuels.
Open to all
This bill responds to the significant and direct financial impact that climate change is having on the value of properties in many parts of Australia. Dr Antonia Settle explained to the committee that:
…the unaffordability of insurance has rapidly become a national problem that reflects the beginning of price realignments in real estate as climate change starts to be priced into markets. That is, the cost to households of climate change largely equates to the cost of insurance. As premiums rise sharply in climatically vulnerable areas, those homes become less desirable and are sold at a discount.
Despite this incontrovertible truth, the government has not mentioned climate change when introducing this bill. The term is used in the Explanatory Memorandum only when quoting references. The government’s head is still buried in the sand, which explains why this bill is half-cooked. Having failed to acknowledge the universal nature of the threat posed by the climate emergency, the government has proposed to nationalise reinsurance for only a particular class of what have traditionally been called 'natural perils', but that are now, very clearly, climate disasters.
This is both inequitable and short-sighted. The climate emergency is pushing up the cost of insurance all over the country. If a government reinsurance pool is to be established, then all Australians should be afforded the benefit.
In supporting an expansion of the scope of the scheme to cover all natural perils, the Royal Automobile Club of Queensland (RACQ) told the committee that '…the RACQ lived experience is an increasing number of events and increasing cost of events, part of which we consider relates to climate'. And that:
…accessibility and affordability of insurance are going to be important as Australia is exposed to a number of perils around cyclone, bushfires and flood. Ensuring that those continue to be accessed to support communities to grow and develop is definitely our position.
Moreover, fully nationalising reinsurance would directly expose the government to the cost of under-investment in public works required to mitigate the impact of climate disasters. The national economy is exposed to these risks one way or another. Nationalising reinsurance would make these risks transparent to the government. This would create a direct incentive for the government to invest in climate adaptation public works all across the country, as well as better data collection, and better land-use planning in coordination with state and local governments. It would not prevent price signals, in the form of individual premiums, being sent to individual property owners to prepare themselves as best they can too.
Finally, expanding the scope of the scheme would also reduce administration costs. As proposed, the scheme only applies to cyclone and related flood damage, and only for damage caused during a declared cyclone period, or 48 hours after a declared cyclone period. As Mr Tyrone Shandiman, Chairperson, Northern Australia Insurance Lobby (NAIL) told the inquiry, '[t]he client, in their policy, does not have the 48-hour limitation; that is a limitation put on the insurer'.
Which means that, in order to obtain reinsurance for uncovered damages on the private market, insurers will not only have to distinguish between their risk exposure for cyclone related flood damage as opposed to non-cyclone related flood damage, but they will also have to distinguish between their risk exposure for cyclone related flood damage either side of the 48-hour limitation period.
Coupled with the exclusion of cyclone damage to motor vehicles, RACQ told the committee that this will add 'uncertainty, complexity and ultimately cost into the system'.
Make them pay
This bill would require the public to maintain a $10 billion fund to underwrite the contingent liability associated with nationalising reinsurance for cyclone and related flood damage.
Dr Settle has criticised the establishment of the scheme, stating that '…the government is shifting risk from insurers to itself, subsidising insurance premiums for those in some parts the country from the public purse'.
However, when asked if underwriting the pool through a levy on fossil fuel companies would change her perspective, Dr Settle responded:
Yes, absolutely. That sounds like an excellent idea. That's the struggle—there's a big funding gap emerging as insurance costs rise, as the cost of natural disasters rise. So imposing those costs on fossil fuel companies sounds like a very equitable way to respond to the issue.
The logic here is very simple. The burning of fossil fuels is what has created the climate emergency. So those who profit from the burning of fossil fuels should be made to pay for the cost of the climate emergency.