Chapter 6Committee view and recommendations
6.1Throughout this inquiry, the committee heard first-hand about the impacts of climate-driven disasters on the lives of many Australians. The committee heard devastating stories of trauma and loss, and the continuing effects of major disasters, including the Black Summer bushfires and the Northern Rivers floods. The committee accepts that climate disasters are now inevitable in Australia and is deeply concerned about the rising frequency and severity of these disasters and their impact on lives and livelihoods.
6.2Acknowledging the critical role of insurance in assisting disaster-stricken communities to recover and rebuild, the committee focused its attention on the insurance affordability crisis that is being experienced around the country.
6.3As canvassed in this report, the rising cost of insurance is impacting people all over Australia, but particularly in disaster affected areas. The committee was astonished to hear that insurance premiums in some regions have increased by up to 400 per cent. Some witnesses shared that their insurance payments are higher than their mortgage repayments. Others disclosed that they cannot afford any insurance at all, or that despite their efforts seeking quotes to secure a level of protection, no insurance companies have agreed to take on the risk.
6.4Submitters from around the country shared ideas for tackling this crisis, including local governments, researchers, industry experts, advocacy groups, legal organisations and the people living in disaster affected communities. The solutions they proposed range from calls for greater transparency and information sharing to significant industry reform and government support.
6.5From the evidence provided, it is clear to the committee that the insurance affordability crisis is complex and will require a multifaceted approach, engagement at all levels of government, as well as the involvement of industries and risk-prone communities. For this reason, it is important that the government consider all of these recommendations together as a package and implement them accordingly.
Greater transparency and oversight
6.6Throughout the inquiry, the committee heard overwhelming evidence about the need for greater transparency both from government and the insurance industry.
6.7As a starting point, the committee recognises the importance of a free, accessible and up-to-date national climate risk map and database. Such a database would inform communities, councils, insurers and government so that they are better able to prepare for climate disasters, respond to the aftermath and more easily identify infrastructure mitigation measures.
6.8The committee understands that local governments in some parts of the country have catalogued local data. However, there is variability in the type of data available and such information is not always made available to the public.
6.9A national database would serve as a tool to enable local communities to make informed decisions about where to live and would help inform how to best mitigate and prepare for the perils most likely to occur in a particular region.
6.10The committee recommends that the Australian Climate Service and the National Emergency Management Agency work with all levels of government and industry to establish and maintain a national disaster risk map and database, covering all types of natural disasters in Australia, which is accessible to the public.
6.11In addition to a publicly available national database, the committee recognises the importance of greater transparency from insurance companies in relation to premium prices. The committee heard shocking examples of households receiving significantly varied insurance quotes from different companies (and sometimes the same company) for the same property. It also heard about premiums being increased by astonishing amounts each year, with little explanation of the methodology used to calculate these increases.
6.12This lack of transparency is unacceptable in pricing for such an essential product in Australia. Not only does this mean that policyholders cannot make informed decisions about what they are purchasing, but it can also make it impossible to challenge pricing decisions.
6.13To enable greater transparency in relation to insurance premiums, the committee recommends that insurance companies be required to provide a breakdown of premiums when offering insurance policies in Australia.
Recommendation 2
6.14The committee recommends that insurance companies in Australia be required to provide policyholders with a sufficient breakdown and explanation of insurance premium costs, including details of price changes in response to resilience and disaster mitigation measures undertaken by the policyholder.
6.15The committee was also concerned to learn that regulators including the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) do not have oversight over premium pricing, as this is considered a commercial decision. Given the heightened risk of price gouging in what is a national affordability crisis, the committee is of the view that independent oversight of premium pricing is required.
6.16The committee is aware that the Australian Competition and Consumer Commission (ACCC) has been directed to monitor and report on the efficacy of the Cyclone Reinsurance Pool and premiums prices. However, it does not have a role in monitoring or reporting on insurance prices in the wider insurance market.The committee considers that given its expertise and mandate, the ACCC is well placed to take on this additional monitoring and oversight role.
6.17The committee recognises that transparency on its own does not amount to oversight, however it considers that it is the crucial first step for appropriate oversight. For this reason, the committee recommends that the ACCC be empowered to monitor and report on insurance premium prices across Australia. As transparency is central to the issue of premiums, the committee recommends that the ACCC report on a quarterly basis and that its reports be published on its website.
6.18The committee recommends that the Treasurer issue a Ministerial Direction to require the Australian Competition and Consumer Commission to monitor premium prices across Australia and to publish its monitoring reports on a quarterly basis on its website.
Measures to target insurance affordability
6.19The committee is cognisant that we are in an insurance affordability crisis with Australians all over the country struggling to pay for basic coverage. A growing number are underinsured while others cannot afford insurance at all.
6.20The committee recognises that taxes on general insurance, including stamp duty, are contributing to premium price rises. It agrees that abolishing or, at least, reducing these taxes on general insurance could trigger an immediate reduction to the cost of premiums while addressing concerns raised by witnesses to the inquiry about the inequity of such taxation.
6.21The committee appreciates that the states and territory governments are responsible for taxes on insurance. Therefore, the committee recommends that the responsible minister engage with state and territory counterparts with a view to abolishing these taxes in the longer term.
6.22Alternatively, if this is not possible, the committee suggests that consideration be given to how taxes on general insurance can be calculated more equitably, to ensure that those paying the highest in premiums are not also required to pay the highest amount of tax.
6.23The committee recommends that the Australian Government pursue the abolition of general taxes on insurance through the Housing and Homelessness Ministerial Council and other relevant ministerial council arrangements.
6.24The committee recognises that the Cyclone Reinsurance Pool serves as another mechanism to address insurance affordability. However, it also appreciates the concerns raised in relation to the operationalisation of the pool, including the view that it fails to create incentives for involved insurers to contribute to disaster mitigation and resilience measures.
6.25Therefore, the committee recommends that a review of the reinsurance pool take place with a view to incorporating the lessons learned before expanding the pool to include other disasters including floods and fires. The review should also consider the feasibility of incorporating incentives for insurance companies to invest in mitigation and resilience measures.
6.26The committee recommends that Treasury expand the Cyclone Reinsurance Pool to cover all natural disasters. The expansion should:
take account of lessons learned from the operationalisation of the current pool; and
incorporate incentives for participating insurance companies to invest in disaster mitigation and resilience measures.
Mitigation and resilience to reduce the impact of climate disasters
6.27The committee acknowledges that Australia will face climate related disasters into the future. However, as climate change is exacerbating these disasters, they will continue to grow in frequency and severity. Therefore, the country must be prepared.
6.28To this end, the committee agrees with the majority of submitters to this inquiry who emphasised the need for greater investment in disaster mitigation and resilience measures by all levels of government, businesses and households.
6.29The committee is aware of existing programs, in particular the Disaster Ready Fund, administered by the National Emergency Management Agency of Australia, that is progressing disaster mitigation infrastructure and systemic risk reduction projects already. The committee considers that it would be advantageous to expand this program to ensure that essential mitigation and resilience work can be undertaken more quickly, before the next major disaster.
6.30The committee recommends that the Australian Government increase the Disaster Ready Fund to $400 million per annum for investment in disaster mitigation and resilience measures.
6.31The committee also considered the significant weight of evidence that it received about the importance of land use and planning laws in ensuring that new developments are not being progressed in high-risk areas, which the committee heard is currently the case in many parts of the country.
6.32Not only is this practice of developing in high-risk areas creating a significant problem for future communities that will be living in those areas, but the committee considers that this will exacerbate the current problems with insurance affordability.
6.33For these reasons, the committee strongly supports changes to land-use and planning laws to enforce a ban on new development in high-risk areas, such as known floodplains.
Recommendation 7
6.34The committee recommends that the Australian Government pursue the matter of land use and planning laws, including the feasibility of prohibiting future development in high-risk areas, through the Housing and Homelessness Ministerial Council and other relevant ministerial council arrangements.
The ‘polluter pays’ model
6.35To subsidise and share the cost of rising insurance premiums, the committee agreed that fossil fuel companies should be required to pay a levy or otherwise contribute to disaster mitigation measures to compensate for the pollution caused by their industries.
6.36The committee received evidence that even a modest levy on emissions would raise considerable funds to go towards addresses Australia’s climate risk and the insurance affordability crisis. In fact, the revenue raised could be reinvested into the disaster mitigation and resilience measures identified in this report.
6.37The committee understands that there are different models for how such a levy could operate. Therefore, it recommends that, as a priority, options for how such a levy could be implemented in Australia be prepared for consideration.
6.38The committee recommends that Treasury develop options for a levy on coal and gas extraction companies, based on the annual energy content they have extracted, from which the funds raised would be invested in disaster mitigation and resilience measures, and the cost of rising insurance.
Senator Mehreen Faruqi
Chair