I rise today to also speak on this bill, the Insurance Contracts Amendment Bill 2011, and to indicate my support for the measures contained within this bill. The bill changes the insurance law to introduce a standard definition of flood contracts. This is something that is long overdue in this area and over many years we have seen despair, I guess, from people who have been subjected to a flood situation only to find that, even though they thought they were covered, they had no insurance cover whatsoever. It was primarily because of the very narrow definition that was used by the insurance companies.
I was going to get onto that one. Back in 2007 after the New South Wales floods and again in 2008 in Queensland, a common definition for floods was put forward by the coalition as an important change by the industry at that time. What happened then is that the ACCC scuttled those previous attempts to introduce such a definition back in 2008 and my colleague and his government on the other side have done nothing at all to progress a common definition up until now. So it is great to see that we are actually moving forward in this area.
The other area we are looking at is there being a requirement that the insurance companies provide consumers with a key facts sheet outlining key information about their home building and their home contents insurance policies so that they can minimise the risk of misinterpretation, if you like, and people can feel comfortable with what they are paying for and that they are actually going to get in a time of crisis what they think they are paying for.
The Social Policy and Legal Affairs Committee did the inquiry on this. About the end of the time they were doing this report it started to become evident that there were other areas where there were some serious issues of insurance failure within the insurance industry. One of those areas was in strata title. Talking to the chair, Graham Perrett, I explained some of the issues we were facing in northern Australia, that while we were starting to get a bit of a handle on some of these issues with flood, up in my area we did not have flood problems, we had cyclone problems. Nevertheless, the devastation is just as profound and if you find you have no cover then the impact on the householder is just as serious. The problem that we were starting to experience up there was that insurance companies were actually withdrawing from Northern Australia. They were doing so in a most alarming manner in that they were increasing premiums to levels that were well beyond affordability. Of course, people could not afford to renew their policies. More and more insurance companies were refusing to insure. Initially, they denied that they were doing that in the area, but I have a letter here from Lumley Insurance, dated 14 February 2012. The letter is to Ms Schmitzer, who lives in North Cairns.
The letter basically said:
“With effect from 19th October 2011 Lumley Insurance ceased writing Household and Landlords Insurance in post codes 4737 and above.”
That, in effect, is from Sarina north. Unfortunately, this is not an isolated incident. More and more insurance companies have been withdrawing their services in Northern Australia, based not on risk but purely on postcodes. It has become a serious problem up there, whether you are trying to get flood insurance, cyclone insurance or any sort of household insurance.
We were faced with another challenge up there with how insurance companies were charging in the area. For example, the insurance premiums for a block of units valued at $10 million in the Cairns region, over a four-year period up until 2011, went from $11,000 to $12,000 to $23,500 to $92,500. You can imagine the impact that that has on families when they are trying to insure. It is also causing major issues in that units are becoming unsellable. We have many examples here where individuals can no longer live in their units. They cannot sell them because of the inflated insurance prices and the rates are greater than any return that you could get in a 12-month period.
As I said, I spoke to the minister and to Graham Perrett, Chair of the House of Representatives Standing Committee on Social Policy and Legal Affairs. They graciously agreed to extend the hearing of the flood inquiry and to include body corporate insurance. They have had meetings up in Port Douglas, Cairns, Townsville and here in Canberra. The committee has done outstanding work. The report will be tabled later this month. I am confident that we will see in that report some recommendations that will extend over and above what we are seeing here in this bill, which will look at affordability of insurance in Northern Australia and also the availability of it.
At Brooklyn Village, a dozen retired couples or individuals are living in what used to be an old mining village. For some reason known only to the council, they decided in their wisdom that, rather than subdivide the individual houses that were there into normal title, they would zone it as strata title. We have a strata title on individual houses, on lots from 1,000 square metres up to 13 acres. But they are all strata title.
Under the current legislation, as it stands, those people have to insure the entire property for replacement value, including the old community hall that is sitting there and has never been used, the disused swimming pool, the tennis courts and a whole lot of things that are part of the village. We also have 12 families living there that cannot get insurance. Of course, it is a major concern for them. Again, this issue was raised at the inquiry. I am hoping that we can find a way whereby we can get the insurance companies back into these regions.
Other areas have been faced with similar crises in recent times-New Zealand and Japan, with the tsunamis, and, more recently and relevantly, in Thailand, with the floods. They are still recovering from that. The Thai government has now taken an initiative to provide underwriting of insurance companies. They have set up a scheme to allow residential and small to medium businesses to get insurance cover for flood. Up to that point you could not get any sort of insurance in Thailand, which was having a major impact. I understand that after the dreadful tsunami-we commemorated the anniversary only a couple of days ago-the Japanese government is looking at doing a similar thing. New Zealand has already implemented an underwriting policy in relation to earthquakes, providing an opportunity for landholders or property owners to buy affordable insurance to give them the security they need.
I know that in the Northern Territory-it is the only one in Australia-the TIO provides an underwriting facility to ensure insurance prices are affordable. There is no point having insurance if individuals or families cannot afford the policy. The other problem is that, even if premiums reduce to a level where they are remotely affordable, companies are putting so many extra requirements on them in relation to excesses that there is no way claims will succeed. So in effect policies are of no value at all.
Have a look at the progression or the failure of the industry, particularly in Northern Australia. I understand similar problems are being faced in the Murray area, and I suspect that with the flooding now going through New South Wales and Victoria we will see similar challenges as they recover from the disaster: affordability and insurance contracting or retracting out of regions continues. When the committee came to Port Douglas, one witness was Mandy Coxon, who has the Mossman Gorge Bed and Breakfast. She wrote a letter saying:
“I have never written such a letter before nor have I ever felt I had a need to. However, with Cyclone Yasi we are not entitled to any sort of government rescue package but we run a small B&B. It is very modest. We were making an income of about $50,000 but because of all the economic problems in the area that income has reduced to $20,000 a year, but our insurance premium has gone up from $3,000 to $5,506.”
She said that that works out at about 25 per cent of the annual turnover of their small business. It comes to a point where it is not affordable. I spoke to Mandy only a couple of weeks ago and she said that the insurance company which had offered her insurance at the increased price has now said that they are withdrawing their offer. She can no longer get insurance for her small B&B and it looks as though she is going to have to close her business down.
We are seeing the same sort of thing in rural residential, where you are finding people on acreage. If they are not running it as an agribusiness and it is over five acres, most insurance companies are now refusing point blank to insure properties. So there are a lot of properties around the area now which are uninsured. One thing we can be sure of is that over time there will be more cyclones and more floods. The Insurance Contracts Amendment Bill is a very small step in the right direction of recognising that there need to be significant changes in interpretation and there has to be a way to ensure competition remains in the market so that we do not get more of these letters from insurance companies advising that, based purely on the postcode, that they will no longer consider the insurance risk.
While I commend these initiatives to the parliament, I say that it is only a very small step in the right direction. I know more recommendations will come out later this month and I suspect that given the failure of insurance in rural residential and other markets like B&B there will be further requirements in relation to reform, so that affordable and effective insurance can give people peace of mind and security, which they need to protect their assets, so that people do not become homeless with no chance of ever replacing their life savings. I commend the bill to the House.