Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Social Policy and Legal Affairs I present the committee’s report entitled In the wake of disasters:volume two: the affordability of residential strata title insurance, together with the minutes of proceedings and evidence received by the committee.

In accordance with standing order 39(f) the report was made a parliamentary paper.

by leave—Today I present the report of the Standing Committee on Social Policy and Legal Affairs into the affordability of residential strata title insurance. This is the second and final volume of its inquiry into the wake of disasters, which has examined a range of insurance issues following the natural disasters that have devastated many parts of Australia in recent years. The impact of Cyclone Lua in Western Australia and severe flooding in parts of Victoria, New South Wales and Queensland remind us that we live in a place that is prone to natural disasters. All Australians need to be able to access affordable and appropriate insurance to provide cover against the risk of being affected by these kinds of events. We need a healthy and competitive insurance industry that is responsive to the needs of its customers and has the capacity to provide adequate cover at affordable prices for all Australians.

On 27 February 2012 the House of Representatives Standing Committee on Social Policy and Legal Affairs tabled its report In the wake of disasters: volume one: inquiry into the operation of the insurance industry during disaster events. The report made a range of recommendations aimed at ensuring that the insurance industry has the capacity to respond to people's claims on their policies in a timely manner. During the aforementioned inquiry the committee also received evidence about spiralling insurance costs, both in disaster affected areas and across Australia more broadly. In particular, the committee heard of extremely concerning increases in residential strata title insurance in North Queensland. In view of these concerns the report also recommended the immediate establishment of a task force to address the rising costs and potential market failure in the insurance industry across Australia. Many unit and apartment owners, particularly those in North Queensland, have been confronted with increases of over 500 per cent in their insurance premiums in recent years. This has been a result of a complex range of contributing factors, none more so than a glaring lack of competition in the market for residential strata title insurance.

The committee recognised the urgency of residential strata title insurance affordability and resolved to conduct an inquiry into the issue with a short reporting time frame. The committee received the terms of reference on 24 November 2011, conducted four very well-attended public hearings and received 431 submissions and 17 supplementary submissions. The committee delivered its report today, outlining a clear and direct course of action to both alleviate immediate hardship and address longer term sustainability issues. The recommendations contained in this report call on the government to strengthen the regulatory frameworks of bodies corporate, examine the methodologies for the assessment and pricing of risk, increase transparency in all strata insurance cost components and raise consumers' awareness of their rights and responsibilities.

The committee is asking the ACCC to examine the cost drivers and relative profitability in the provision of strata insurance policies by insurers and to investigate whether there has been anticompetitive behaviour in the North Queensland strata insurance market. I reiterate that the committee responded expeditiously to the urgent issue of residential strata title insurance affordability. The committee trusts that the Australian government will be similarly prompt in implementing appropriate and much needed reforms in response to the recommendations contained in this report.

I thank the hundreds of people who made submissions to this inquiry and the many more who attended public hearings and bravely spoke about their dire circumstances. While there is no quick fix for this complex issue, I trust that this report sets in motion the actions required to balance the insurance market and address affordability issues for strata title insurance.

I thank the local senators and members who lent their support to their constituents during the public hearings, including Senator McLucas and the member for Herbert. The two supplementary members to the committee—the member for Leichhardt and the member for Dawson—made a fantastic contribution. I would also like to thank all the hardworking members of the committee for taking on this inquiry in addition to their already increased workload in recognition of the urgency of the issue and the need to initiate government action. I thank Dr John White and Dr Anna Dacre, as well as my Chief of Staff, Matt Jutsum, who finishes with me on Friday, for the great work he contributed to this report and also for his loyal service over the last few years.

Warren Entsch (Leichhardt, Liberal Party) Share this | Link to this | Hansard source

by leave—I would just like to take a few moments to also associate myself with this report by the Standing Committee on Social Policy and Legal Affairs. In the first instance I would like to thank the chair and the committee for being prepared to move so quickly after dealing with the flood report, acknowledging the challenges that were being faced in Northern Australia by the emerging unaffordability of strata insurance. Public hearings were held in Port Douglas, Cairns and Townsville. We also had a videoconference in Mackay, and there was a further public hearing in Canberra. It became very evident very quickly that the rising premiums and the lack of competition seemed confined to the Northern Australia and Northern Queensland markets.

There was also a problem, given that there is a mandatory requirement in relation to strata title insurance. There was a concern that insurance companies were choosing low-risk markets and in doing so were creating regional inequities. Unfortunately, there is currently no requirement for insurance companies to offer strata title insurance and therefore there is no regulatory requirement to ensure that affordable insurance is available in all areas of Australia. It is interesting too that the insurance brokers in North Queensland were suggesting that the situation was indicative of a market failure, and evidence that was presented by Mr Dallas Booth, the CEO of National Insurance Brokers Association in Australia, conceded that the market was struggling in Northern Australia. He said, 'I cannot deny that it is getting very close to market failure.'

That was the challenge that we had. As the chairman rightly said, there were a lot of stories that were put into it, a lot of horror stories in fact about insurance. I think there were 400-and-something submissions to the inquiry, which is amazing. The recommendations that have come out of this, while they are not going to fix the problem immediately in relation to affordability, are certainly going to start a journey, if you like, that will hopefully start to bring some sort of conclusion here that will allow people to be able to afford their insurance again in this area.

The recommendations that came through I think were very good, particularly recommendation 2, where the committee recommended that the Australian Prudential Regulatory Authority conduct a review of the risk assessment methodology and in particular the failure to consider the changes in building codes and the cost of reinsurance. The others recommendations I would also like to mention include that the Attorney-General conduct a review of the state and territory legislative and regulatory requirements around strata insurance and looking at options to provide strata complexes with greater flexibility in their choices of insurance arrangements, including availability of tailored arrangements that may offer capped insurance to cover non-essential assets infrastructure.

As I said, this is not a silver bullet but I certainly look forward to having this presented into an area of mine which is greatly affected by this particular situation. Though there is no silver bullet, I think it needs to be remembered that there is a legislative requirement for strata property owners to be covered by insurance and this in itself is a guaranteed market for insurance companies. Therefore I think insurance companies could play a significant role in immediately easing the insurance crisis faced by strata title property owners in Northern Australia by recognising a social obligation and re-entering the market with affordable insurance. I would expect this would be far preferable to waiting for government intervention. I commend the report to the House.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

Debate adjourned.