Tuesday, 20 June 2023
Northern Australia Joint Select Committee; Report
The Joint Select Committee on Northern Australia, which I am privileged to chair, released its report into Northern Australia's Cyclone Reinsurance Pool in March this year. I want to thank my colleague Mr Neumann for tabling this report in my place and for his fine words.
I want to use this opportunity to thank my colleagues on the Northern Australian Committee, the member for Solomon, Luke Gosling; the member for Blair, Shayne Neumann; Senator Nita Green; and, of course, we had a lot of fun with the deputy chair of the committee, Mr Warren Entsch. It was a collegiate inquiry and one that highlights the good results of working in a collaborative and bipartisan matter.
I want to thank the fantastic staff of the committee secretariat, Patrick, Ros and Jason. This was a dense topic and required a deep dive into many technical aspects of the legislation and the scheme. Their work and professionalism made this a very easy inquiry to chair.
I also want to thank all of the witnesses who appeared before the committee for their evidence and insight. Our insurance industry has an important role to play in the liveability of Northern Australia, and I believe they appeared in good faith and have continued to engage in a productive manner with my office.
On the matter of the cyclone reinsurance scheme itself, the Joint Select Committee on Northern Australia was able to put forward a solid report which explored some of the issues relating to the cyclone insurance scheme. The committee made a number of modest recommendations, all aimed at minor improvements. Namely, (1) ensuring data was and can be released in a timely manner prior to key milestones of the scheme, (2) reviewing the availability and coverage of the insurance, (3) reviewing the 48-hour clause on the cost of insurance premiums, (4) that the Australian government announce a position on the inclusion of maritime insurance and (5) the coordination of land use, planning, building codes and mitigation to ensure all levels of government are working together.
One of the prevailing issues was the expectation of the scheme put forward by the former government. This was noted by the committee in its report. As a committee, we also noted the pressure householders and households in northern Australia were under when it came to insurance premiums. This has been an enduring issue, and with the increase in the frequency of cyclonic activity and flooding, it is something that government and community will need to respond to. The committee also noted that, while a number of large insurers have joined, the scheme is not yet established enough to conduct a more comprehensive assessment. A small number of large insurers still need to join, as well as medium and small insurers. Only then can we fully assess the impact of the cyclone reinsurance scheme in reducing its premiums.
Something raised in the inquiry process, in which I am particularly interested, is how we mitigate the effects of natural disasters. Our climate is changing, and that is something that is as clear as day. We must ensure our communities' infrastructure is resilient and fit for purpose. Over the last few years we have seen the serious impact of natural disasters right across the nation, but particularly so in northern Australian. Recent flooding in my electorate of Lingiari highlighted just how vulnerable many communities are to natural disasters. I want to single out and thank our Minister for Emergency Management, Murray Watt, for his work on disaster readiness. I also want to thank the Minister for Northern Australia and Minister for Resources, Madeleine King, and the Assistant Treasurer for their support in this Inquiry. I thank and look forward to working with other members of the committee in due course, when the time comes for us to review and re-look at the scheme and its viability moving forward.
I have been looking forward to rising to speak again on this very, very important subject of cyclone reinsurance. As the member for Leichhardt and the Deputy Chair of the Joint Standing Committee on Northern Australia, I've taken a very keen interest in this issue over many, many years and in finding a solution for insurance affordability in Far North Queensland, and in northern Australia more broadly, and it's been very challenging. We've been up a lot of dry gullies as we've tried to find solutions.
I also would like to thank my very, very capable chair of the committee, the member for Lingiari. She is very, very capable and a great replacement for her predecessor, and I enjoy immensely working with her. I can't stress enough the level of cooperation that we have in working in a very bipartisan way. This in itself will allow us to achieve the best possible outcome that we can for our region. Other members of the committee—I see my good friend the member for Dawson here, ready to make a contribution, which I'm sure will be very positive, and other members, as well—have made a great contribution. I also would like to acknowledge the work of the secretariat. Patrick, Ros and Jason are doing a brilliant job. They make it a lot easier for us as members of the committee, and I really appreciate the outstanding work that they've done.
During my previous address, when this report was first tabled, I spoke to the key recommendation that I believed would help drive the required reforms that will ultimately see insurance premiums come to a more affordable level. We're certainly not there yet, but we have to see it as a work in progress. There have been many important learnings going through this journey, and I believe we are getting a little closer now. I believe that I see a little bit of light at the end of the tunnel.
Since the inquiry, we've seen a number of insurers make good on their commitment and join the reinsurance pool. We now have Sure Insurance and Allianz. Allianz is only partly there; it's only their general insurance. We've still got to get their strata and business insurance to come on board as well. I understand that will come later in the year. CHU was the latest one to confirm that they're part of the scheme. I was talking only today to the AAI group, and I know the member for Solomon also met with them today. I was pleased to see that they're very close to coming on board as well. This is the Suncorp group and the range of companies that are under that umbrella.
As I said during my previous speech on this matter, the full impact of cost reductions will only really be ascertained once all of these companies are operating and have signed into the pool. I didn't realise at the time when we first brought this in that it was going to take a lot longer than I anticipated because they had contractual arrangements with international reinsurers, and it's only as those international reinsurers become due for renewal that they're able to step away from that and join this pool. But by the end of this year we will have all of them on board, and that's really going to make a very significant difference.
Already we've seen premiums start to soften and a broader positive impact on many of the affected communities, which have certainly long suffered from the absolutely ridiculous costs to insure the properties. I'm sure all members will appreciate that it's now more important than ever that we really focus on getting these reductions, given the ever-growing cost-of-living crisis. I firmly believe that we can deliver savings to the affected consumers if we take meaningful action.
This is particularly important with respect to strata, where we have to be also looking at encouraging the state government to look at reforms, in two areas in particular. One is the cost of stamp duties on renewals, and the second is the current policy which requires body corporates to insure for full replacement value. That, unfortunately, significantly increases the cost to the insured. We need to get to a point where they have an option of either full replacement, if they're super cautious, or insurance for the market value of the property, which is generally much, much less than full replacement value. The reality of the situation is that no insurance company, if they're going to write off an asset, are going to pay any more to the insured than the market value of the property. So that's something that we need to continue to focus on.
Again, I reiterate the importance of some of the key recommendations from the report. Some of those were mentioned earlier by the member for Lingiari, who is our chair. One crucial aspect is the 40-hour limitation associated with cyclone related floods. Aligning with the international standard of 168 hours would offer more realistic coverage, but we must be careful to balance this with the potential of increased costs. Again, I retain significant concerns about insurance for farms and agribusinesses and marine insurance, and I'm not certain that these areas have yet been sufficiently addressed, so we need to be keeping a close eye on that.
As the chair mentioned, the timely release of modelling data to insurers also remains an essential element to enable accurate decision-making in this whole process. My hope is that we will continue to work collaboratively across all jurisdictions to get the reinsurance pool to be as perfect as it can be, with the aim of using it as a model for other areas that have challenges more broadly in Australia. We've seen over recent years that much of Australia has been impacted by floods, and, if the reinsurance pool can be perfected in this case, as we're doing in northern Australia, I'm sure we can expand it to take these learnings to develop a similar solution for these other areas as well.
One of the keys now is that we've got to wait until the end of the year when everybody is on board. That's going to significantly increase competition, and we'll see the real impacts of the changes in relation to costs et cetera as we wait for more insurers to join the pool. Once we've got all of these companies—large and small—in there, by the end of the year, we can start doing another assessment. As the chair also said, I think we need to be looking at this early in the new year. Let's have a look at the effects of the changes that we have now, and then I would be encouraging the committee to have another sharp, deep dive into this and have another go at it to see where we need to tweak it even further so that we can get it to be the absolute best it can be.
I'm very keen to continue to work with the chair and the committee in a very strong bipartisan way to make sure that, at the end of the day, we can be proud of what we've been able to achieve. At the end of the day, I think all of our communities across northern Australia can be very, very thankful for the work that we're doing in this place.
I certainly commend the recommendations and the report to the House.
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.
I rise today to speak about the inquiry into the reinsurance pool and the first report. I would like to start by acknowledging and thanking our chair, the member for Lingiari, Marion Scrymgour, for her fine work and the inclusivity of what she's done for this report and, indeed, on how the chair runs the committee. I would also like to thank the co-chair, Mr Warren Entsch, the member for Leichhardt, for his experience in this regard and all the members on the committee for their collaborative approach to try to make this reinsurance pool as good as it can possibly be.
Here's a little history lesson. This started as a coalition initiative, and it received bipartisan support from the then in opposition Labor Party. It has now, in the same spirit, been taken forward by the current Labor government and enjoys the support of the opposition. The reason for this is that the insurance industry is so important so our constituents can actually purchase insurance and purchase insurance at an affordable price, because the prices they are currently paying in North Queensland and in northern Australia are just way too high, and it's not acceptable. So we need to do something about that, and hopefully this reinsurance pool will work towards that.
This is all about creating liveability for our constituents, providing them with the comfort to make sure that they can insure their homes, their businesses and everything they do at a reasonable price, at an affordable price. Currently, we're paying circa 2½ times more in northern Australia than what they are in southern Australia, and this is not sustainable. It is certainly something that needs to be addressed, and it needs to be addressed sooner rather than later.
I'm sure those opposite, like me, have people coming to their offices and are seeing them at markets, telling them, 'I've had insurance premiums go up 30 per cent.' This is 30 per cent year-on-year, and this is just not acceptable and not sustainable.
This has led to some people doing self-insurance. Self-insurance might sound like not a bad idea. It's when people put money aside that they were going to pay for premiums and put it in a kitty, and then, if they have something go wrong, take their money out. Unfortunately, what happens is priorities get in the way of that. You might need a new washing machine or your dryer blows up or something like that, so you end up spending that money. Then, in times of need, that money is not there.
The other thing people are coming to me about is the need for affordable insurance, because insurance premiums in the North have just gone through the roof. As you would be aware, the only thing worse than really expensive premiums is not being offered insurance at all, and that is what's happening as well. We've got people in our area who are not being offered insurance at all. The main objective of this pool is to lower insurance premiums for households and small businesses that have high cyclone and related flood damage by allowing insurers to reinsure cyclone risks at a lower cost than would be the case if insurers reinsured from a private market. The pool commenced its operation on 1 July 2022, but unfortunately many consumers are still waiting for their insurance providers to come onboard. Large insurers have until 31 December 2023, and those that have under $300 million have until 31 December 2024. We encourage these insurers to get onboard. As of February 2023 two insurers, Allianz Australia and Sure Insurance, have joined the pool, but there are still 14 more to go.
Why is this so important? Without affordable insurance in northern Australia, people will simply not be able to live there. Businesses will be deterred from expanding and investors will be deterred from investing. Developers will not take on projects, and banks will simply not finance projects that it's not possible to get insurance for. This will cause rents to increase and will also exacerbate the housing problem. It's something we cannot have. And this is for northern Australia, the region that has 40 per cent of the landmass that contributes so much to Australia's finances, to our export dollars—through iron ore, through coal. This pool will cover 3.3 million households, 220,000 small businesses and 140,000 residential strata units.
In my electorate of Dawson, which is the biggest sugar-growing region in the whole country, we need to keep people on their farms and we need to keep people in their houses, and the way we can do this is to make sure they can afford insurance. The region is also the winter salad bowl of Australia. If we want people to continue to feed the nation, we need to make sure they can live in northern Australia and thrive. Again, it's why we have to make sure they can live there with affordable insurance. We have ports, we have Bowen mangoes, we have cattle spread throughout, we have mining and we have tourism. If Australians are genuinely all about growing Australia, and if they're genuinely all about making sure we keep all these people who are working in business and looking after Australia, then we need to make sure we all work together collaboratively to give them the right insurance at the right price.
The Joint Select Committee on Northern Australia, of which I am a proud member, started its inquiry last October, and we've made numerous recommendations to improve the rollout of the scheme over the next few years. However, in view of the evidence given during the inquiry, the committee considered it premature to recommend significant changes, because we didn't want delays. We need to let this insurance pool start. We need to let the insurers be involved and encourage more people to be involved so that the savings can start to follow through. We didn't want to put extra changes or more impediments on the insurers to make their life more difficult.
So, next steps for this: as I've said before, the major insurers will be onboard by the end of December 2023. We need to encourage all the second-tier insurers to get involved and be on board by December 2024. After this, in about 12 months time, it will be up to the chair. We will need to review. We will need to have a look at exactly where we are in this whole scheme of things. We need to make sure we see how effective the reinsurance pool is, because it's so important that we get this right to bring down the prices of insurance in North Queensland. So I am committed to fighting to reduce all insurance premiums, be they for households, business, marine or strata. I think we can particularly do more in those last segments, but let's start off with what we're doing and then tweak it, make some adjustments from there, and make sure we can continue building on this.
Then I'd like to tackle the public liability. It's something our tourism operators are facing each and every day when they take people out for adventure tourism in particular. They take them out for fantastic experiences—that's what we have in Australia; we have lots of experiences. People can go out there and enjoy the Great Barrier Reef, enjoy our beaches, enjoy the mountain walks, enjoy the natural wildlife and the natural flora and fauna that we have. We just need to make sure that our tourism industry can afford to do that, so let's have a good look into the public liability and see what we can do for that.
It's for those reasons I commend this report to the House. It's a very good report. I would like to again thank my committee members for the way they've interacted and the way that they've worked together. Let's make sure that we bring down the cost of insurance premiums for northern Australia.