Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for the Republic) Share this | Hansard source

Labor supports the Treasury Laws Amendment (Cyclone and Flood Damage Reinsurance Pool) Bill 2022. Home and contents, small business and strata insurance has become more expensive and unaffordable in parts of Australia, particularly in areas that are at risk of damage from cyclones and flooding associated with the increasing risk of climate change. That's putting pressure on household budgets and is leading to underinsurance in certain regions within Australia.

There have been several inquiries and reports into the affordability of insurance in the north of Australia. There was the Productivity Commission inquiry into Natural Disaster Funding Arrangements, the Northern Australia Insurance Premiums Taskforce and the Senate's inquiry into Australia's general insurance industry. Most recently the Australian Competition and Consumer Commission Northern Australia Insurance Inquiry was conducted over three years and found that the average premium for combined home and contents insurance across northern Australia was almost double that of the rest of Australia. Between 2007 and 2019, average home insurance premiums rose in real terms by 178 per cent in northern Australia, and combined home and contents rose by 122 per cent. Average contents insurance premiums increased by 33 per cent in northern Australia, but decreased by three per cent in real terms in the rest of Australia.

These increases are due to climate change. Insurers are pricing their premiums based on the risk of damage from cyclones and other severe weather events in the north of Australia. Because some insurers don't want exposure to risk levels, they simply don't operate in the area. In fact, there are only around eight insurers who offer insurance in Australia's north, with that lack of competition adding to price increases. The ACCC recommended a number of measures to improve insurance affordability but pointed out that the cost of insurance reflects the risk of damage due to climate change and that governments must find ways to reduce that risk through better building codes and mitigation infrastructure.

It's important to note that the ACCC did argue against the creation of a reinsurance pool. After three reports over three long years, the Morrison government has ignored that ACCC report and refused to respond to its recommendations. Many of those recommendations would have made a difference to insurance premiums, and it goes to the fact that the government has had nine years and has done very little on this issue. After nine years, they have left it until the dying days of this parliament to try and ram through this legislation. Nonetheless Labor will be supporting the bill.

The bill creates a reinsurance pool which will be administered by the Australian Reinsurance Pool Corporation and will commence on 1 July 2022. Large insurers have until 31 December 2023 to join the scheme, and small insurers have until 31 December 2024. The scheme is compulsory for insurers that offer cyclone risk policies. All eligible cyclone risks are covered under the scheme. However, insurers will need to obtain additional reinsurance from the private market for any of their retained risk. For insurers who participate in the scheme, it's mandatory. Nonparticipation will see a fine of up to 1,000 penalty units. The pool will apply to Australia and its external territories.

Basically, the way the pool will work is that it will be compulsory for insurers to take out their insurance with the Reinsurance Pool Corporation. The Reinsurance Pool Corporation won't charge the typical profit margin that insurers would face in the private sector, thereby making a cost saving on the cost of reinsurance in the north of Australia on cyclone coverage. It's hoped that they will pass that saving on to their customers and, of course, that that will increase competition.

Over the last couple of week, the government has been claiming in the media that this change will produce savings for households on insurance in the magnitude of 46 per cent for home and contents and of 58 per cent for strata developments on their insurance premiums. Labor has simply been asking the government to release the modelling. We know they have done modelling on this issue, and we believe that the people of the north of Australia—households, businesses and consumers—have the right to know what these claims are based upon. When the scheme was originally launched, the minister said it would provide savings of up to 10 per cent. Now the minister is saying it will provide savings of up to 46 and 58 per cent. How was that determined? There is an actuarial study somewhere behind that, and I thank the public deserve to know whether or not those savings will be real and what the veracity of those figures is. We have asked in estimates and we've asked through Senate processes, yet the government is claiming public interest immunity and refusing to release those details. I say to those opposite: just release the details, so the people of northern Australia can have a look at them. They've been through enough when it comes to insurance. The government has waited nine years to do something. Nothing has happened. Insurance premiums have been going through the roof. The people of northern Australia have been suffering. They deserve to know whether or not this scheme's going to work—and, indeed, whether or not it's going to get through the parliament.

The pool will cover claims from damage caused by a cyclone that commences during a declared cyclone event. That will be determined by the Bureau of Meteorology; they will form a view as to when a cyclone starts and ends, and that will be declared publicly. The coverage lasts 48 hours after that declaration is made that the cyclone has ended. Importantly, this means that some damage in the wake of many cyclone events that have occurred in Queensland over the past couple of decades would not have been covered by the pool. For example, most of the damage that occurred during Cyclone Debbie in 2017 happened well after the cyclone had hit, with the subsequent flood damage. That would not be covered by this part of the scheme, and that's going to mean that those insurers are going to have to take out two policies of reinsurance for periods where damage occurs after the 48 hours. It's not ideal, but those are the facts that they will have to work around.

The pool covers policies that provide for loss or damage to eligible properties associated with business interruption, a consequential loss and those prescribed by the regulations. An eligible insurance contract must provide for household, strata, small business or charity and not-for-profit property. Government owned properties, where they are insured as a government entity, are not eligible for coverage. Marine will be included, up to a certain limit that is yet to be determined in the regulations. The scheme covers policies for eligible risks up to a threshold of $5 million, and that threshold does not apply to eligible household property policies.

The scheme will be cost neutral to the government over time, and ARPC will be pricing cyclone and flood damage risk to meet the cost-neutral objective. Before setting these premiums, the ARPC must have regard to several factors to ensure that the reinsurance pool can achieve its objective of lowering insurance premiums for households and small businesses in cyclone prone areas. In addition, the reviewing actuary must review the premiums before they are set. The pool will cover all eligible claims above the policyholders excess for cyclone events in the first three years. Thereafter, the pool will operate on a risk-sharing arrangement with insurers to allow the staged transition to a limited level of risk retention by insurers.

The bill provides for cyclone reinsurance to be backed by an annual reinstated $10 billion Commonwealth guarantee, and the guarantee is supported by a special appropriation. If, unfortunately, we do see cyclones that are of a large magnitude in the first few years that draw on the pool's reserves, it is the government that will have to step in and provide that additional backing for this scheme, if it runs out of funds in those early years. The decision to draw on the Commonwealth guarantee must be made if funds from the reinsurance pool are insufficient to meet those claim costs.

As the bill introduces a new Commonwealth guarantee for the cyclone reinsurance scheme, it also makes amendments to ensure that the Commonwealth guarantee for the cyclone reinsurance scheme is separated from the guarantee of the existing terrorism reinsurance scheme. The minister must also provide a report, as soon as practicable, that reviews both the cyclone and terrorism reinsurance schemes three years after the pool starts. The bill also expands the ARPC's board by adding two additional part-time members. It's hoped that they will have experience in this area of cyclone insurance.

In the long run, if we're serious about making insurance costs affordable and sustainable in areas prone to extreme weather, we need to reduce that risk, and that's something that I think the people of northern Australia are acutely aware of now. The premiums are increasing because the risk associated with extreme weather and climate change is increasing. All of the expert evidence is not only that climate change is going to make the cyclone zone move further south but that the severity of weather events is going to increase. That is why insurers are pricing in that risk. That is the cost of climate change. It is being priced into the risk of damage because of extreme weather. It's been pointed out on several occasions that, if you're going to reduce that risk, you need to invest in mitigation infrastructure. We need to invest in flood levees. We need to invest in resilience for households and businesses in this area, through programs such as the Queensland government's Household Resilience Program, which has been oversubscribed on many occasions and is currently in the market.

New figures have been revealed in estimates, showing that the government hasn't been using the Emergency Response Fund to build that mitigation infrastructure. The government established the fund specifically to do that, but it's been uncovered at estimates that the fund hasn't spent any of its available funding, nor has it completed a single disaster mitigation project, and it's pocketed about $836 million in interest. So, instead of using this fund to build mitigation infrastructure to reduce that risk for the people of northern Australia and ultimately bring their insurance premiums down, the government's established the fund, used it to make money by pocketing the interest and ignored the people of northern Australia. That is unconscionable, and that is why, after nine years, people are still facing large increases in their insurance premiums and are saying, 'Why has the government had nine years and done nothing?' They've done nothing.

If Labor is elected, not only will we ensure that the reinsurance pool is put in place but we will make sure that priority is given to the north of Australia in investing in mitigation infrastructure projects. Labor is putting its money where its mouth is, because we've already announced that we will revamp the government's failed emergency Response Fund and create a new Disaster Ready Fund. It will have up to $200 million per year invested in disaster prevention and resilience to protect the lives and livelihoods of Australians, particularly those in the north of Australia, and hopefully bring down their insurance premiums. We've already allocated some of that funding if we're elected. Five million dollars has been allocated to build a flood levee in Mackay, for which the people of Mackay have been asking this government for many, many years now. The government is all talk. Labor will, if we are elected, deliver when it comes to producing mitigation infrastructure that will reduce the cost of insurance premiums for people in the north of Australia. Not only will they get the reinsurance pool but they'll get the additional important investment in mitigation infrastructure that will help bring down that risk as well. I commend the bill to the House and I move:

That all words after "That" be omitted with a view to substituting the following words: "whilst not declining to give the bill a second reading, the House notes that this Government have had almost nine years to take action on the skyrocketing cost of insurance in northern Australia and have failed to deliver anything to the long-suffering households and small businesses who have seen their premiums on average almost double in that time".

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