Northern Australia Insurance Premiums Taskforce
FINAL REPORT
November 2015
Page ii
© Commonwealth of Australia 2015
ISBN 978-1-925220-76-6
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CONTENTS
Acronyms and glossary ...................................................................................................... v
Acknowledgements .......................................................................................................... vi
Executive summary and recommended way forward ....................................................... vii
Context and approach ............................................................................................................................ vii
Threshold issues .................................................................................................................................... viii
Feasibility of a cyclone mutual or reinsurance pool for cyclone risk ...................................................... ix
Mitigation .............................................................................................................................................. xiii
Other approaches ................................................................................................................................... xv
Recommended way forward ................................................................................................................. xvi
1. Context and approach ............................................................................................. 18
1.1 The context: managing the rise in insurance premiums in northern Australia ...........................18
1.2 Insurance premiums and market conditions in northern Australia .............................................20
1.3 The approach: assessing the feasibility of the options ................................................................22
2. Threshold issues ..................................................................................................... 25
2.1 Regions of northern Australia experiencing affordability concerns due to cyclone risk .............25
2.2 Types of insurance to be covered ................................................................................................26
2.3 Defining a cyclone for the purpose of insurance .........................................................................27
2.4 Estimates of potential cyclone damage in northern Australia ....................................................28
2.5 Current cyclone premiums and cost to government ...................................................................36
3. Insurance option 1: Mutual cyclone insurer ............................................................. 38
3.1 A possible design ..........................................................................................................................38
3.2 Criteria 1 and 2: the potential reduction in premiums and cost to Government ........................41
3.3 Criteria 3 and 4: effect on insurance and reinsurance markets and the potential for
Government exit ..........................................................................................................................47
4. Insurance option 2: Cyclone reinsurance pool .......................................................... 48
4.1 A possible design ..........................................................................................................................48
4.2 Criteria 1 and 2: the potential reduction in premiums and cost to Government ........................50
4.3 Criteria 3 and 4: effect on insurance and reinsurance markets and the potential for
Government exit ..........................................................................................................................55
5. Mitigation of cyclone damage ................................................................................. 57
5.1 Benefits and challenges of cyclone mitigation.............................................................................57
5.2 Reducing the vulnerability of buildings to cyclone damage ........................................................58
5.3 Options to reduce the vulnerability of houses in northern Australia ..........................................62
6. Other approaches raised by stakeholders ................................................................ 74
6.1 Direct subsidy ...............................................................................................................................74
6.2 Reducing state insurance taxes and duties ..................................................................................76
6.3 Regulating commissions to strata managers ...............................................................................77
Northern Australia Insurance Premiums Taskforce final report
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6.4 Policy contestability and disclosure .............................................................................................79
6.5 Responses to insurance availability issues in the Indian Ocean Territories ................................80
7. Comparison and summary of options ...................................................................... 82
7.1 Direct subsidy ...............................................................................................................................82
7.2 Insurance options .........................................................................................................................82
7.3 Mitigation .....................................................................................................................................86
7.4 Recommended way forward ........................................................................................................88
Appendix A: Terms of reference ....................................................................................... 91
Appendix B: Reference Panel members ............................................................................ 92
Appendix C: Report by Finity Consulting ........................................................................... 93
Appendix D: Alphabetical list of submissions .................................................................... 94
References ....................................................................................................................... 95
Northern Australia Insurance Premiums Taskforce final report
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ACRONYMS AND GLOSSARY
ABS Australian Bureau of Statistics
ACCC Australian Competition and Consumer Commission
AGA Australian Government Actuary
APRA Australian Prudential Regulation Authority
ARPC Australian Reinsurance Pool Corporation
ASIC Australian Securities and Investments Commission
ATO Australian Taxation Office
Catastrophe
reinsurance
Insurance purchased by insurers on the global market to protect them from large
losses due to a catastrophe. Under the contract the insurer will meet the first
portion of claims and claims above this level are covered by the reinsurer.
CRC Co-operative Research Centre
CTS Cyclone Testing Station, James Cook University
Discretionary
mutual fund
Discretionary mutual funds offer an insurance-like product that often involves a
contractual obligation to consider a claim, but provides the fund with discretion
whether to pay the claim. They are not subject to the same level of prudential
regulation by APRA as Australian authorised insurers.
ICA Insurance Council of Australia
NEXIS National Exposure Information System, Geoscience Australia
