Tuesday, 20 June 2023
Northern Australia Joint Select Committee; Report
The chair of our committee has just left, but I want to thank her, together with the member for Leichhardt, for guiding this shortish inquiry. It's very important, particularly for those of us who live in northern Australia and particularly those who are paying an enormous amount for our insurance. In the Territory particularly, because of cyclones, we're paying a lot more even than most of northern Australia, so by rights this cyclone reinsurance pool should help us the most. We're yet to see that, but obviously we're seeing some softening, as the former speaker said. We depend heavily on the availability and affordability of insurance not only for our citizens but for our businesses. The cyclones are incredibly destructive. We've seen that in recent years. Of course Cyclone Tracy is the one that saw most of our city flattened. Of course, we've had improvements in building standards since then, so, the next time we're hit, we're going to do a lot better.
Affordable insurance in northern Australia, including in Darwin and Palmerston in my electorate, is incredibly important. At the moment, the unaffordability of insurance deters businesses from expanding at times, and it deters investors from investing. Some developers are reluctant to take on new projects because of the cost of insurance. People can even be reluctant to move up to northern Australia. Alternatively, if they are already living in northern Australia, they may relocate south when affordability becomes unworkable. A range of social infrastructure facilities, such as aged-care facilities, may no longer be able to operate profitably, should we not be able to rein in the cost of insurance. As rents increase, that puts a strain on people as well, particularly those who are on low incomes. So it's in all of our interests in northern Australia to make sure that the pool can work and also that there is more-affordable insurance going forward.
As the report before us rightly notes, without affordable insurance, northern Australia cannot flourish to its full and massive potential, and that's why this pool is so important. I'll give some figures for context. On average northern Australians are slugged with about $2,370 for residential combined building and contents insurance. I can guarantee that, for the Northern Territory, particularly with a variety of house construction types and varying dates of construction, you can pay, as I do, over five grand for building and contents insurance. For some context, Australians living in the southern half of our country pay on average about $1,350 a year for their insurance—so it's a big difference. Strata insurance in northern Australia was over double the premiums paid by the rest of Australia, at around $7,740 on average compared to strata insurance in the south of about $2,940. I think all fair-minded members would agree that that is an outrageous difference.
It isn't yet mandatory for insurance companies to join the pool. Time is sneaking up for those large insurers with premiums over $300 million. They've got until the end of this year. Smaller insurers, with less than $300 million, have until December next year to join the pool. As we have heard, two insurers, Allianz Australia and Sure Insurance have joined the pool. There are about 14 insurers in total in northern Australia who are involved. The pool now covers 19 per cent of home insurance sums in northern Australia. The chief executive of the Reinsurance Pool Corporation told Senate estimates last year that there would be premium savings of around 13 per cent on average for home insurance policies in northern Australia. That, of course, would be welcome. Separately, Allianz calculated the average premium saving would be around nine per cent—obviously, not as good as 13 per cent, but it would still be welcome if it became a reality. They also said that there could be a saving of up to 30 per cent in some regions of northern Australia—just with a little caveat there. But we'll see what becomes a reality. I'm a glass-half-full person. I hope that some of these premium reductions come to fruition.
The general view that our committee derived from witnesses was that it was still too early to determine whether the pool has indeed led to reduced insurance costs. RACQ indicated in its submission that evidence did not show widespread premium reductions in northern Australia at that time. As I said, it was quite a heated day of hearings that day. I made the point strongly, and I make it again now, that it is unfortunate that there have been raised expectations that were pretty unrealistic—even at the time—that the pool could reasonably be expected to deliver. I don't think we should make any judgements on the performance of the pool as yet. But, if you can remember pre-election, there were certainly all sorts of claims on how big the premium reductions would be. Clearly, community expectations of cheaper insurance premiums in northern Australia, at this point in time, have not been met. But let's see. It should have acknowledged perhaps that this process was going to take time, and I acknowledge the member for Leichhardt for saying that.
I've got to be a bit parochial for a second, though, and say that from the Northern Territory's perspective, the treatment of Territorians by some insurers has been disappointing. The Chamber of Commerce NT said that the most significant issue for the NT is the lack of interest from insurers in even participating, with barely 10 or 15 that actively wish to participate in our marketplace. So I say to insurers out there: have a look at the Territory. More competition is going to be good for Territorians, and what's good for the Territory is good for Australia. I hope that there is more interest, because there's going to be a lot more happening in the Territory going forward, and you'll help to build confidence.
Some insurers called for more mitigation investment, such as improvements in zoning, building codes and land-use planning in the Territory, and some of that's already happening. It isn't a reason, therefore, to penalise Territorians, who are among the most exposed to dangerous cyclones—unless you want to say we shouldn't have any settlement between north-west Western Australia and the good folk of northern Queensland. We all agree that it's good to have Darwin as an operating base for our military but also to hold the continent, to have a settlement, in the north of Australia. I think that's a great idea. And, for all those reasonable Australians, that requires that there's a bit of a 'Team Australia' effort to make sure that it's affordable to live in Darwin and in the Top End as well as across the north of our great country.
I regret that few insurers have signed up today. However, as I said, I am a glass-half-full person. I'm confident, as the member for Leichhardt said, that others will be signing up before too long. Obviously, that cut-off looms large by the end of this year for those larger companies.
Overall, the committee had concerns about the ongoing implementation of the pool to date, but I think the recommendations are good ones. They call for, firstly, future releases of modelling to be provided well in advance of key dates in the ongoing rollout of the cyclone reinsurance pool and, secondly, the Australian government review the availability and coverage of insurance in northern Australia and the impact of the 48-hour clause that we spoke about during the hearings on the cost of insurance premiums for northern Australians. Recommendation 3 is calling for the Australian government to direct the ACCC in a number of ways.