Onus on insurance companies to ease pain for North Queensland

FEDERAL Member for Warren Entsch is urging insurance companies to show a social obligation and provide North Queenslanders with affordable strata title insurance rather than wait for the Government to intervene.

Mr Entsch yesterday (March 21) told Federal Parliament the insurance crisis facing northern Australia required Government action but warned there was no quick fix unless insurance companies realised the impact their pricing was having on property owners in his region.

His comments came after the Social Policy and Legal Affairs Committee tabled its second “In the wake of disasters” report on the inquiry into the affordability of strata title insurance. Mr Entsch, who was instrumental in establishing the inquiry, said there was little doubt the market had experienced a meltdown.

“I commend the committee for its hard work in addressing this extremely complex problem,” he said.

“I have been dealing with property owners who are struggling to keep their homes after being hit with strata title insurance increases of up to 1000 per cent. Some people have had to borrow just to pay their insurance and if they’re faced with the same premiums next year, it’ll tip them over the edge.”

Mr Entsch told Parliament the current laws and regulations put unit owners in an untenable position.

“There was concern that insurance companies were choosing low-risk markets and in doing so were creating regional inequities, especially in North Queensland,” he said.

“It needs to be remembered that there is a legislative requirement for strata property owners to be covered by insurance and this in itself creates a guaranteed market for insurance companies.

“Unfortunately there is currently no strata title insurance and therefore there is no regulatory requirement to ensure that affordable insurance is available in all areas of Australia. This is a huge concern for all strata title property owners in half of Queensland.”

The report included feedback from insurance brokers who conceded the strata title insurance market in North Queensland had collapsed.

National Insurance Brokers Associated chief executive officer Dallas Booth told the committee: “I cannot deny that it is getting close to market failure”.

“Market failure is a trigger for government intervention,” Mr Entsch said.

Mr Entsch said the recommendations outlined in the report were a framework for the Government to address the issue in the long-term.

“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,” he said.

“The recommendations that came through I think were very good, particularly the review of the risk assessment methodology and in particular the failure to consider the changes in building codes and the cost of reinsurance.

“Likewise, the 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 the availability of tailored arrangements that may offer capped insurance to cover non-essential assets infrastructure. I’ve been very vocal on the need for an Ombudsman for the property insurance industry to investigate suspected gouging and complaints of unfair price hikes.”

But Mr Entsch said the insurance industry held the key for a more immediate solution.

“These recommendations are very good but they are not the silver bullets,” he said.

“But insurance companies can play a very 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, rather than pricing based on postcodes. I expect this would be more preferable than waiting for government intervention.”

The report’s nine recommendations call on the Government to:

– Work with the Queensland Government to initiate a 12-month moratorium on Stamp Duty charged on strata title insurance for properties north of the tropic of Capricorn
– Investigating the risk assessment methodologies of insurance companies to price risk for strata title insurance coverage
– Investigate the reasons for the lack of competition in the strata title insurance industry in North Queensland and take action if required
– Investigate whether there is improper or anti-competitive behaviour taking place in the negotiation of strata title insurance via managers and brokers and take action if required
– Improve resources for consumers to better equip them in the management of strata title affairs
– Conduct a comprehensive review of strata title laws and regulations to increase the choice of insurance arrangements for consumers and increase transparency in the disclosure of commissions and fees, and
– Outline the plan of reforms it will undertake with the Queensland Government to establish a competitive and affordable insurance market for residential strata title insurance, with a focus on North Queensland.
Mr Entsch said the committee had set deadlines to ensure the issue was not protracted.

“I am pleased that they have set a timeframe of the 1st of October to have all the reviews completed and the 1st of December for the Government to outline their reforms for the insurance industry,” he said.

“We need to watch very closely to ensure these timeframes are adhered to.”

To view the report summary or in full, visit http://aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=spla/strata/report.htm