Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Joint Select Committee on Northern Australia, I present the committee's report, incorporating a dissenting report, entitled Inquiry into the cyclone reinsurance pool: first report on the cyclone reinsurance pool.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—This is the first report of the Joint Select Committee on Northern Australia this term. It's the first report into the cyclone reinsurance pool this term. The cyclone reinsurance pool, CRP, has had a long history, and there have been many parliamentary and governmental inquiries and reports going back more than a decade. Indeed, I've been part of one or two myself.

This committee itself, and others, has focused on the issue of the limited market provision and the high cost of insurance in northern Australia. This report documents that history. This report focuses specifically on the implementation and operation of the CRP and its effectiveness. The report discusses the fundamental question: how can we expand or develop northern Australia without insurance coverage? Without coverage, it's very difficult to see northern Australia flourish. Tropical cyclones, storm surges, freshwater flooding, significant landfalls and soil movement are all, sadly, experienced by our fellow Australians north of the Tropic of Capricorn.

The CRP commenced operation on 1 July 2022, backed by a $10 billion Australian government guarantee intended to cover any shortfalls from the pool. That pool relates to cyclone and related flood damage arising during a cyclone event that lasts from the time the cyclone begins until 48 hours after the cyclone ends, above policyholder excesses. The main object of the CRP is to lower insurance premiums for householders and small businesses by allowing insurers to reinsure for cyclone risk at a lower cost than would be the case if those insurers purchased reinsurance from the private market. The ACCC has noted in its first report following the introduction of the CRP the disparity in insurance costs between those in the north and those in the rest of Australia. At this stage there are only a few insurers who have signed up to the CRP, like Allianz Australia. Evidence at the inquiry was that other insurers intended to join the CRP shortly.

The committee, in the report, expressed its concern about the implementation and operation of the CRP, and intends to monitor its continuing operation once again, once the CRP is fully operational. There will be further opportunity to determine whether the pool is working properly through a scheduled review of the legislation, due to report after 1 July 2025 and every five years thereafter. However, this committee intends to reconsider the CRP in 2024 once major insurers have joined the scheme.

I commend the first report of this select committee and its recommendations to the House.

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

by leave—I rise to speak on the report of the Joint Select Committee on Northern Australia inquiry into the cyclone reinsurance pool. My community of Leichhardt and Far North Queensland has long grappled with the challenges of high insurance premiums and a continued diminishing lack of coverage particularly in relation to strata. I've dedicated more than the last decade to advocating for insurance affordability in northern Australia. In fact, my first proposal for a reinsurance pool was back in 2011. However, it's only been more recently that I've been successful in being able to prove market failure in northern Australia, so the fact that we now have a legislated reinsurance pool for cyclones is certainly a major step in the right direction.

Given that this is a whole new policy direction for government, it is understandable that there will be teething problems in ensuring that we have the right legislative process to effect the changes that we need for accessible and affordable insurance cover. I think the aspiration is reflected in recommendation 6, where the objective is to move for parity of cost across Australia. That's because, when we're talking about access and affordability for northern Australia, it's fair to argue that incomes are no greater and the cost of living is no lower than for the rest of Australia.

I think the review is very timely, but it is clear that we will require additional reviews. At the time of the inquiry, no insurers had signed up for the pool. Presently we have two: Allianz was the first and then Sure Insurance. But to measure the real impact, we have to wait for the rest of the major insurers to come on board. I'm pleased to see that this commitment has been made by all of the major insurers, and we will see a lot more participation over the next few months. This will give us a far better insight into the effectiveness of the pool and what we need to change. This is quoting from the review:

In view of the evidence given during the inquiry, the committee considers it premature to recommend significant changes to the pool now or to commit additional resources to its development, until such time as all the necessary insurers have joined the pool.

I think this is a very smart way of dealing with this.

With regard to strata, I'm eager to see how the reinsurance pool will impact on prices, but it's clear to me there are further opportunities that we must pursue at a state level. For instance, we need to encourage the Queensland state government to abolish stamp duty on insurance renewals and to review their compulsion of strata body corporates to ensure full replacement value rather than market value. In my view, if the option were available to both it would see an additional significant reduction in premiums.

The 48-hour limitation on floods associated with cyclones is problematic. The international standard for reinsurance pools is 168 hours. I think it is critical that we bring the pool into alignment with these standards. It's very clear that cyclone related flooding occurs well after that 48-hour period, and it's critical that we extend the time frame. I appreciate that this has created some hesitancy by insurers because of the additional coverage requirement to bridge the gap between 48 hours and 168 hours. This may well be reflected in additional costs to consumers. There are some additional concerns that I believe we need to pay close attention to, whether we're looking at insurance for farms and agribusinesses or, in particular, marine insurance. We also have to ensure the timely release of modelling data to insurers to allow for more informed and accurate decisions. The reality is that everybody agrees the reinsurance pool is the way to go. There is no doubt that this will require additional work, but we cannot simply sit back and do nothing.

I must say I found it unnecessary to target the previous government in the report, especially given the complexity associated with what was a first-of-its-kind type of policy. I'd just like to remind the government that, when it was in opposition, it supported the legislation without amendments. With something so important, I think it's absolutely critical that we take the politics out of it and focus on finding a workable solution for the challenges. If we can get it right with the cyclone reinsurance pool, there may very well be an opportunity to pave the way for providing a much broader natural disaster pool, covering all of Australia.

Finally, I'd like to take the opportunity to congratulate the new chair, the member for Lingiari, for her first report, and for the fact that she's been able to follow the tradition of the Northern Australian committee to put forward a fully consenting report—something we've been able to do since the inception of the committee. Congratulations, once again, to the committee and to all the participants. I certainly look forward to working with her and the rest of the committee. I commend the report and I look forward to subsequent reviews once the majority of insurers have signed up. Hopefully, we can do that towards the end of this year.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I move:

That the House take note of the report.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The debate is adjourned, and the resumption of the debate will be made an order of the day for the next sitting.