Labor Senators' Additional Comments

1.1Labor Senators would like to extend our thanks to the Chair, fellow Committee members, the secretariat and those who made submissions and provided evidence to the Committee.

1.2We would particularly like to acknowledge the members of disaster impacted communities who shared their stories with us, despite the trauma they have endured and continue to endure.

Greater transparency and oversight

1.3Labor Senators begin by recognising the substantial work of the House of Representatives Standing Committee on Economics inquiry (House inquiry) into insurers' responses to 2022 major floods claims, which took place prior to and concurrently with this Committee's work.[1]

1.4Following 23 hearings over a year of investigation, the House inquiry received 108 submissions and 60 supplementary submissions, with its 457-page final report tabled in October 2024, putting forward 86 recommendations, proposing a significant overhaul for how Government and the insurance sector respond to natural disasters.

1.5Labor Senators support the findings and recommendations of the House inquiry, and note it conducted a substantially more thorough investigation of the issues canvassed by this committee.

1.6We note that recommendations 1 and 2 of this report, concerning improving the quality of flood and other disaster mapping, and introducing greater transparency to premium pricing, align broadly with recommendations 62 and 23 of the House inquiry. Similarly, recommendation 4 of this report, although like recommendation 7 it is a matter for State and Territory governments, aligns broadly with recommendation 86 of the House inquiry.

1.7With respect to mapping, Labor Senators note the Albanese Government is already working with the insurance industry to develop a detailed map of risk and insurance cover across Australia. Simultaneously, NEMA is also developing a National Natural Disaster Risk Profile to create Australia's first authoritative understanding of current national hazard risk to prioritise government mitigation efforts.[2]

1.8There are also many other recommendations aimed at improving transparency and oversight in the insurance industry within the House inquiry's report, which were not explored by this committee.

Improving insurance affordability

1.9The Albanese Government has taken an unprecedented number of steps to address insurance affordability, and disaster resilience and mitigation. Its first October 2022-23 budget allocated $22.6 million over four years for initiatives to improve insurance affordability and availability.[3]

1.10One of the initiatives established in that budget was the Hazards Insurance Partnership (HIP). The HIP brings together representatives of the Australian Government and the insurance sector to tackle issues at the intersection of hazard risk and insurance. The HIP aims to inform effective and evidence-based risk reduction activity and investment, with a view to influencing insurance affordability and availability.

1.11The Insurance Council of Australia noted the HIP is already improving understanding of affordability, under-insurance and non-insurance issues.[4] Similarly, the Australian Prudential Regulation Authority (APRA) noted the work of the HIP to address risk and affordability, but acknowledged that the impact of such initiatives can take time to flow through to premium benefits for consumers.[5]

1.12As part of the 2024-25 Budget, the Albanese Government established the Insurance Affordability and Natural Hazards Risk Reduction Taskforce, to develop an integrated, cross-government approach to minimising the impacts of disasters on communities, and address insurance costs driven by more frequent and intense weather events.[6] The Taskforce is led by the Department of Prime Minister and Cabinet and will be informed and complimented by work already underway through the HIP.

1.13Additionally, the Albanese Government has implemented the Cyclone Reinsurance Pool (the Pool), which commenced operating on 1 July 2022 with Commonwealth backing of up to $10 billion per annum, and now includes all large insurers, and by the end of this year will include all remaining smaller insurers that have not yet joined.[7]

1.14Although the Australian Reinsurance Pool Corporation (ARPC) highlighted that it is already providing about $5.8 million in discounts per annum for risk mitigations to individual policy holders,[8] the feedback from many submitters was that the scheme needs to be improved, or possibly even expanded. With that said, the ARPC shared that the average cyclone pool premiums for high‑risk policies have reduced by 38 per cent, in comparison with the period prior to the establishment of the Pool.[9]

1.15The Australian Competition and Consumer Commission has been tasked to monitor the Pool's impact on insurance premiums. Its most recent report, published in September 2024, concluded that while the Pool is delivering premium relief for some higher risk policyholders, those savings have been offset by varying extents by other cost increases.[10]

1.16The complexities associated with the Pool are highlighted by the fact that the Morrison Government, in establishing the scheme, promised premium price reductions of up to 58 per cent, when in fact the secret modelling it commissioned was later revealed to show this was not the case, and it showed some premiums may even increase.[11]

1.17Labor Senators note this report's recommendation 5, that the Pool should be expanded, but also note the feedback from numerous submitters to this inquiry including the Productivity Commission, about potential unintended consequences of the Pool,[12] and the mixed results reported by the ACCC about the Pool's efficacy to-date.

Investing in disaster resilience and mitigation

1.18In addition to its investment in directly improving insurance affordability, the Albanese Government has made record investments in disaster resilience and mitigation.

1.19The Albanese Government is investing $1 billion over five years through the Disaster Ready Fund (DRF), which commenced in September 2022, in resilience and mitigation projects. The DRF is further co-funded by State and Territory Governments, and DRF rounds one and two have delivered approximately $400 million per annum in co-funded investment.[13] Labor Senators note that this report's recommendation 6 calls for $400 million of DRF spending per annum, which is already being delivered.

1.20Labor Senators note the DRF has started delivering insurance premium relief since the first funding was announced last year. For example, one funded program is the Queensland Household Resilience Program, delivered by the Queensland Government, which assists homeowners in coastal parts of central and northern Queensland to improve the resilience of their homes against cyclones. Eligible homeowners who have had resilience works approved have reported an average insurance premium saving of 9 per cent.[14]

1.21In addition to the DRF, the Commonwealth provides funding directly to State and Territory governments through the Disaster Recovery Funding Arrangements (DRFA). Among the funding delivered is $741 million co-funded with the Queensland Government for the Queensland Resilient Homes Fund, and $830 million co-funded with the New South Wales Government for the New South Wales Resilient Homes Program.[15]

1.22In addition to the billions of dollars in funding provided through the DRA and DRFA, the Commonwealth has funded or launched other smaller initiatives, such as $40 million for the North Queensland Strata Title Resilience Pilot Program, which will fund up to 50 per cent of disaster mitigation works for strata properties, with the remainder being co-funded by the Queensland government and Strata titleholders.[16]

1.23The Albanese Government has also launched other initiatives to improve resilience standards, including commencing work through the Planning Ministers Meeting on national principles for considering disaster and climate risk as part of land use planning and building reforms.[17] This ongoing work encapsulates this committee's recommendation 7. There is also ongoing work being undertaken by Building Ministers on making climate resilience an objective of the Australian Building Codes Board.[18]

1.24In addition to the direct protection these investments and initiatives provide to residents in disaster prone areas, investments in resilience and mitigation at the household or community level should decrease risk exposure, and deliver a corresponding decrease in household premiums. This connection was highlighted by most submitters to the inquiry, including insurers, local governments, academics, and groups representing policyholders.

1.25However, despite the significant investment from federal, state and local governments, and by policyholders and strata titleholders, in resilience and mitigation measures, there was widespread concern that these investments are not flowing through to lower premiums. This was best illustrated by Murweh Shire Council's evidence about the town of Charleville. The construction of a flood levee, house raisings, river clearings and the diversion of a gully resulted in no homes being inundated this year despite extensive rainfall, yet insurance premiums have risen by as much as over 400 per cent.[19] This experience was echoed by many inquiry participants, including the Local Government Association of QLD[20] and Lismore City Council[21].

1.26Others, such as Ballina Shire Council and the New School of Arts Recovery Support Service, raised alarm about increases to insurance premiums being handed to homeowners who have not even been impacted by floods or other disasters, based on their postcode or suburb.[22]

1.27While these issues were not covered in depth by this Committee's report, we note they were extensively explored by the House inquiry, and support its recommendations 76 to 80 regarding improving insurers' consideration of mitigation measures in pricing.

1.28Similarly, while this report noted the issues that were raised about insurers requiring policyholders to rebuild like-for-like after making a claim, rather than allowing them to rebuild using superior mitigation materials and practices, even at their own expense, the report did not make a recommendation. Labor Senators support the House inquiry's recommendation 26, which suggested that the General Insurance Code of Practice be amended to require insurers adopt a more flexible approach in relation to building back better.

Fees charged to Strata titleholders

1.29Throughout the inquiry, the Committee heard about the impact that the high cost of strata fees and commissions is having on consumers. Unfortunately, this was not reflected in the Committee's recommendations.

1.30The Committee heard evidence of intermediary charges soaring to rates of 40percent or more. This is despite industry expert John Trowbridge's view that:

20 [per cent] is more than brokers need. They pay part of that to the strata managers. The brokers should be able to exist on fees of the order, let's say, for the sake of this argument, which is not to be too precise, something of the order of 10 [per cent] is all they need.[23]

1.31As Ms Madeleine Serle, President of Maribyrnong Community Recovery Association, explained:

Insurance is replete with this supercharging of costs because it's insurance and it's not a managed subcontract process. So, absolutely, there is no need for those egregious and usurious approaches to costing in insurance.[24]

1.32Several witnesses supported greater transparency around commissions, fees and other charges to improve outcomes for consumers.

1.33As summarised by representatives from Allianz Australia:

We are aware that the level of transparency that's provided, ultimately, to lot holders and body corporates is not always as complete as what we would think is best practice, and we would agree with a lot of the observations around the opportunity for improvement in transparency, and that entire value chain is definitely something that could be looked at.[25]

1.34Representatives from the Insurance Council of Australia suggested:

… it would be appropriate for every owners' corporation to receive full transparency around the fees and charges being paid in that supply chain in a standard form so that they're clearly understandable and comparable.[26]

1.35In line with this evidence, we recommend the Australian Government should examine approaches to improve the transparency of the disclosure regime for strata managers and brokers.

1.36State and territory governments should review governance in strata schemes with a view to ensuring best practices which protect consumers and facilitate greater levels of transparency and accountability for strata residents. The Australian Government should consider the adequacy of the insurance disclosure regime for strata managers and brokers.

The proposed 'polluter pay' model

1.37Labor Senators agree with the proposition that Australians living in areas impacted by climate-exacerbated disasters must not be left to bear the financial brunt of climate change themselves. The significant investments made by Commonwealth, State, Territory and Local Governments highlight this commitment.

1.38Labor Senators agree in principle that securing funding from fossil fuel producers to contribute towards supporting policyholders is an idea that has merit. However, we cannot endorse such a significant change to Australia's taxation system when it is not supported by any modelling or evidence of its intended or unintended consequences.

1.39The proposal is particularly incoherent when read in conjunction with other Greens policies, such as an immediate moratorium on projects and the phasing out of existing coal exports by 2030, which combined would presumably lead to the proposed levy raising little to no revenue. In fact, the existence of this levy could act as a perverse incentive to future Governments to prop up the thermal coal sector.

1.40The Albanese Government has dedicated unprecedented resources to expediting the transition to renewable energy, and to meeting Australia's net zero targets. This stands in stark contrast to the Liberal and National opposition, whose leader Mr Dutton famously joked about people in high-risk communities having 'water lapping at [their] door'.[27]

1.41The Liberals and Nationals have made their opposition to renewable energy clear. Their risky nuclear plan would not deliver a single watt of new energy for at least two decades, entrenching Australia's dependence on coal and gas for many years to come, and even then would only finally deliver 4 per cent of Australia's energy needs. This would have disastrous impacts for the climate and for residents of high-risk communities, with flow on impacts for insurance premiums being compounded by the massive spike in power bills nuclear would inflict. Exacerbating these concerns is the fact that the Liberal and National parties have yet to release any modelling or analysis of the potential impact of earthquakes or other natural disasters on their proposed nuclear power plants.

1.42Rather than risky, uncosted nuclear plans, or vague unmodelled slogans about polluter taxes, Labor Senators support the Albanese Government's focus on accelerating the transition to renewable energy, while investing in ways to improve disaster mitigation and resilience, and reduce insurance premiums.

Senator SheldonSenator Nita Green

Deputy ChairSenator for Queensland

Senator for New South Wales

Footnotes

[1]House of Representatives Standing Committee on Economics, Flood failure to future fairness: Report on the inquiry into insurers’ responses to 2022 major floods claims, October 2024.

[2]National Emergency Management Agency, Submission 14, p. 7.

[3]Senator the Hon Murray Watt, Minister for Emergency Management, and the Hon Stephen JonesMP, Assistant Treasurer and Minister for Financial Services, 'Landmark funding to help reduce insurance costs', Media Release, 26October2022.

[4]Insurance Council of Australia, Submission 2, p. 4.

[5]Australian Prudential Regulation Authority, Submission 15, p. 3.

[6]The Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, 'Insurance Affordability and Natural Hazards Risk Reduction Taskforce', Media Release, 31 May 2024.

[7]Dr Christopher Wallace, Chief Executive Officer, Australian Reinsurance Pool Corporation, Committee Hansard, 20 September 2024, p. 13.

[8]Dr Christopher Wallace, Chief Executive Officer, Australian Reinsurance Pool Corporation, Committee Hansard, 20 September 2024, p. 13.

[9]Mr Pulkit Jain, Head, Actuarial, Australian Reinsurance Pool Corporation, Committee Hansard, 20September2024, p. 13.

[10]Australian Competition and Consumer Commission, Insurance monitoring: Third report following the introduction of a cyclone and cyclone-related flood damage reinsurance pool, September 2024.

[11]The Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, 'Modelling released for Reinsurance Pool', Media Release, 30 June 2022.

[12]Productivity Commission, Submission 10, p. 8.

[13]Senator the Hon Murray Watt, Minister for Emergency Management, 'Nearly $400 million for disaster preparedness announced under new Disaster Ready Fund', Media release, 7 June 2023.

[14]National Emergency Management Agency, Submission 14, p. 7.

[15]National Emergency Management Agency, Submission 14, p. 7.

[16]National Emergency Management Agency, Submission 14, p. 7.

[17]The Hon Catherine King MP, Minister for Infrastructure, Transport, Regional Development and Local Government, Planning Ministers’ Meeting February 2024 Communiqué, 27 February 2024.

[18]National Emergency Management Agency, Submission 14, p. 9.

[19]Cr Shaun Radnedge, Mayor, Murweh Shire Council, Committee Hansard, 9 August 2024, p. 8.

[20]Ms Crystal Baker, Manager, Strategic Policy, Local Government Association of Queensland, CommitteeHansard, 9 August 2024, p. 2.

[21]Cr Steve Krieg, Mayor, Lismore City Council, Committee Hansard, 8 August 2024, p. 4.

[22]Mr Paul Hickey, General Manager, Ballina Shire Council, and Cr Sharon Cadwallader, Mayor, Ballina Shire Council, Committee Hansard, 8 August 2024, p. 4; Mrs Kristy Morrow, Case Manager, New School of Arts Recovery Support Service, Committee Hansard, 8 August 2024, p. 42.

[23]Mr John Trowbridge, private capacity, Committee Hansard, 20 September 2024, p. 33.

[24]Ms Madeleine Serle, President, Maribyrnong Community Recovery Association, CommitteeHansard, 30 September 2024, p. 7.

[25]Mr James Fitzpatrick, Chief Data Officer, Allianz Australia, Committee Hansard, 20September2024, p.44.

[26]Ms Alexandra Hordern, General Manager, Regulatory and Consumer Policy, Insurance Council of Australia, CommitteeHansard, 1 October 2024, p. 27.

[27]Francis Keany, 'Peter Dutton overheard joking about rising sea levels in Pacific Island nations', ABCNews, 11 September 2015.