Affordability issues have plagued the insurance market in recent years, following a spate of natural disasters, such as cyclones, floods and bushfires. The fallout has driven up the cost of insurance to protect against these risks to unaffordable levels in some parts of Australia. But, in the recent Federal Budget, the Federal Government made three announcements aimed at tackling the affordability problems.
Natural disaster mitigation
The first of these will see the Government establish a new national body, The National Recovery and Resilience Agency, with $600 million to spend on disaster preparation and mitigation measures such as bushfire and cyclone-proofing houses, and building flood levees, which should lead to more affordable insurance for those buildings and towns that benefit. The Agency will also improve the resilience of telecommunications and essential supplies during disasters, provide support to local communities during the relief and recovery phases following disasters and provide advice to the Government on policies and programs to mitigate the impact of future major disaster events. The new Agency brings together the former National Drought and North Queensland Flood Response and Recovery Agency and the National Bushfire Recovery Agency, and will take responsibility for supporting the long-term recovery of communities rebuilding after the recent storms and floods in New South Wales and Queensland, and cyclones in West Australia.
Northern Australia cyclone reinsurance pool
The Federal Government also used the Budget to announce that it will establish a reinsurance pool to cover cyclone and related flood damage in Northern Australia, which will come into effect from 1 July 2022. The pool, which will be backed by a $10 billion government guarantee, aims to reduce insurance premiums across Northern Australia by over $1.5 billion for households, strata property owners and small businesses over the next 10 years. According to Government forecasts, more than 500,000 residential, strata and small business property insurance policies in Northern Australia are expected to be eligible to be covered by the reinsurance pool. Limited availability of reinsurance to cover this disaster-prone area has resulted in some insurers finding it uneconomical to sell property insurance policies across Northern Australia at all, while those that do provide policies charge high premium prices. This Government reinsurance guarantee should increase the availability of property insurance in Northern Australia, and make it more affordable.
North Queensland strata relief
The third announcement from the Government was $40 million in funding for a capped, three-year pilot program to subsidise the cost of cyclone mitigation works for eligible strata-title properties (both residential and mixed use residential) in North Queensland. The affordability of strata insurance in North Queensland has been particularly problematic as strata properties are required to have insurance under Queensland legislation. According to the Australian Consumer and Competition Commission, in 2018-19 the average strata premium was $6,800 in North Queensland, compared to an average of $3,300 in other parts of Australia. Under the arrangement, the Federal Government will partner with the Queensland Government to deliver the program, which is expected to commence from January 2022.
For more information
The Gow-Gates team welcomes the Federal Government’s Budget measures to tackle the critical issue of insurance affordability. For more information, or a discussion of your personal, business or strata property insurance requirements, whether you live in a disaster prone area or not, you can contact us by emailing firstname.lastname@example.org or calling us on 02 8267 9999.
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