I rise to again speak on an issue which has been having far-reaching implications in my electorate and in northern Australia more broadly.
A recent Cyclone Preparedness Index by RACQ showed that 8.4 per cent of residents had no home building or contents insurance at all. A further 11.7 per cent had insufficient cover to rebuild their home should it be destroyed. This equates to one in five families not being able to afford to rebuild their home should a major disaster hit Cairns.
Add to this the current lack of competition in our insurance market, ongoing price gouging and denial of market failure, as well as the weather bureau’s forecast for four cyclones this season, and the picture being painted is a perfect storm barrelling down on us literally and financially.
The Insurance Council of Australia is still showing a reluctance to engage-and that certainly is an understatement-aside from taking swipes at new initiatives such as those in a 23 October media release from Minister Cormann. ICA said of that release:
… it was concerned about Unauthorised Foreign Insurers being granted easier access to Australia’s tightly regulated household insurance market in North Queensland.
… Acting CEO Karl Sullivan said the industry was urgently seeking more details about several initiatives … announced today by the Acting Assistant Treasurer, Mathias Cormann.
It should not be a surprise to the Insurance Council of Australia. We first flagged this back in December last year. It was again highlighted in May this year when Treasury released its discussion paper addressing the high cost of home and strata title insurance in North Queensland. The document included a lengthy section outlining the proposal to allow foreign insurers into the market, but it seems to have gone under the radar of the ICA.
The ICA is concerned that consumers “may not be able to rely on the company to deliver on its promise if the consumer needs to make a claim”. What a joke. Many consumers cannot even get a policy with an existing Australian insurer due to the lack of competition in the market or the ridiculously overpriced premiums, and that is why we are being driven to overseas insurers in the first place.
It is interesting that the National Insurance Brokers Association does not have a problem with that initiative. Under current regulations, insurance brokers can place business with unauthorised foreign insurers if the terms, including price, available, from an Australian insurer are substantially less favourable.
The Insurance Council of Australia also said that it would seek more details about the proposed aggregator website, which would compare home and contents products based on price, features and claims handling. The ICA warns that insurance premiums ‘reflect the risk that each policyholder faces … buying a product on a price alone may result in the consumer not having cover for the risks they face.’
National Insurance Brokers Association of Australia echoed this fear, saying consumers will assume that all cover is ‘the same’. Mr Deputy Speaker, do they really think consumers are stupid? Do they think that consumers would purchase a product as important as property insurance, whose complexities have been amply highlighted in recent years, simply on the lowest price?
A number of aggregator websites already operate in Australia; for private health insurance, car insurance, travel insurance and more. While the products are initially sorted by price, a summary includes the key points of cover for the policy, in a simple comparison with other policies that come up. There is no reason why our aggregator website cannot work the same way-except, of course, that it may highlight the lack of competition in the market if a search returns only a couple of results or none at all.
The Insurance Council of Australia ends the release by saying that the Australian Government Actuary found the market to be competitive’. How is it competitive when prices are five times higher in the northern towns than they are in the southern cities? I certainly look forward to the outcome of the second report into home and contents insurance that I asked to be commissioned. I have no doubt at all that it will also show insurers in a very poor light.
I have also requested that the Government Actuary look at small business insurance, given the massive increases that have been reported by the Queensland Chamber of Commerce and Industry in recent times. I would also like to have a look at rural residential as well.
It is still very disappointing to note the lack of significant action to date by the big insurers. A couple of them are trying but it is just not enough. Suncorp launched its new residential product in conjunction with Good Shepherd to help cover lower income customers. However, it is still a pilot. It has not been trialled in North Queensland and will only assist a very limited sector. Brooklyn recently entered the market with a view to individually assessing small and medium complexes north of Rockhampton. However, teething issues showed that Brooklyn does not insure storm surge on properties within 500 metres of the coast. I have sent information to Brooklyn’s CEO, urging him to address this issue.
CGU is more promising. I had a briefing with CGU when it completed engineering assessments on its first 100 properties, whereby 86 of the properties received a reduction on average of 15 per cent and one received a reduction of 29 per cent. At the end of the day, how and when insurers decide to address broader affordability and availability issues will determine how much of an impact these moves will have on the market.
You have to ask the question: why have insurance prices only recently begun to skyrocket in Far North Queensland? Cyclones have been around for far longer than insurance. Clearly there are a number of factors at play. Northern Australia has four per cent of Australia’s inhabitants spread over 40 per cent of the land mass. It is easy for insurance companies to fob us off to reduce their own risk, with little impact on their bottom line; but this demonstrates zero social and community responsibility.
Let us look at the change in the insurance industry’s approach to profits. In the past, they had a national focus but in recent years they have shifted to a regional approach. Managers in each region are given incentives based on their results and are therefore motivated to opt out of certain insurance products or markets or to significantly increase price to give themselves a greater opportunity to receive a bonus. This creates significant variation in premiums across the country and disadvantages communities in exposed regions.
While we are on the subject of profits, let us crunch a few numbers. IAG, which is the Insurance Australia Group, owns CGU, NRMA, WFI, Coles and Lumley Insurance. It recently announced an insurance profit of $1.579 billion for the year, up 10.6 per cent from the previous financial year. CEO Michael Wilkins earned $6.1 million for the year, up from $4.9 million the previous year. That is not a bad effort.
AAI Limited, which owns AAMI, GIO, Suncorp, Vero, Apia, Bingle CIL, InsureMyRide, Just Car Insurance, Shannons and Resilium, just to name a few, recently announced a consolidated profit, after tax, of $918.6 million, up from $812 million the year before. Interestingly, its net earned premium increased by $218 million despite there being lower natural hazard costs and a decrease in underwriting expenses. Its CEO, Patrick Snowball, took home a very tidy $9 million pay cheque-an increase of $1.1 million over the year before, thanks to maturing bonus shares.
I think it is time we started looking outside the square. One of the things that I think we need to look at is companies or a model that, instead of focusing on profit, employs a concept that works to counter that-such as a mutual. Similar institutions already occur in the banking sector, like the Cairns Penny bank and the Bendigo Bank, which have a community driven focus. There is a lot of merit because a mutual is not profit driven. It does not have the responsibility to provide returns to shareholders, so profits can be reinvested back into the fund. And, of course, all the policyholders become shareholders in the mutual. We are certainly looking forward to finding out more about this. A lot of work is being done on that model at the moment. We will see how that can work across northern Australia.
I have also been working with TIO. We are having meetings with them later this week in the hope of seeing whether or not they have an appetite to also get engaged in northern Australia.
I accept the advice that the measures we are taking are going to be successful in increasing competition and driving down prices. However, I will continue to monitor the situation very closely. As I have been warning insurance companies when I meet with them, I certainly have more extreme measures that I am determined to promote if these initiatives that are currently on the table do not achieve the acceptable outcome.
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