The Northern Australia Insurance Premiums Taskforce interim report, released by the Federal Government last week, doesn’t say anything we didn’t already know or couldn’t figure out for ourselves.

The report says the taskforce has consulted widely on the feasibility of a mutual insurer or a reinsurance pool, and gives a nod of recognition to the insurance industry’s preference for building greater resilience, rather than relying on federal government subsidies.

It touches on the need to “carve out” cyclone risk from home, contents and strata insurance arrangements, noting current insurance and reinsurance programs don’t have a separate, defined category of “cyclone risk” or a “cyclone policy”.

Perhaps the most intriguing sentence in the short interim report is this one: “It is important to clearly define what risks may potentially be shifted from insurance and reinsurance companies to the Commonwealth balance sheet.”

That at least recognises the size of the task ahead.

The interim report says the taskforce is working on the mechanics of how it all might work together so consumers pay less, but there’s not a word about how deep the Government’s pockets might have to be if, say, a cyclone were to rip through Cairns.

Reliable sources have suggested to insuranceNEWS.com.au that the lack of real financial content or commentary in the interim report reflects the Federal Government’s present fear of finding itself in the middle of another financial controversy, facing awkward questions it has no answers for, such as: how much is this exercise going to cost taxpayers over the next 20 years?

Welcome to the world of risk, where insurance companies live. They don’t know when or where or how many tropical cyclones will hit northern Australia in the next few years, but they do have a better idea of what it might cost them, and what they need to charge in premium to make it feasible.

It might therefore be useful for policymakers in Canberra to consider a new Allianz report on the lessons learned after Hurricane Katrina wrecked New Orleans 10 years ago this week.

For the purposes of this Analysis, there are lessons from Katrina that deserve careful consideration.

The Allianz report says scientists cannot provide a conclusive answer to the question of how climate change affects storms, but “most agree severity of windstorms will change in future”.

“The severity of losses from weather events including windstorms is already increasing,” the report says. “The average amount paid for extreme weather events including windstorms by insurers between 1980 and 1989 totalled $US15 billion ($20.6 billion) a year.

“Between 2010 and 2013 this rose to an average of $US70 billion ($96.4 billion) a year.”

Allianz says globally, windstorm losses account for about 40% of all natural hazard losses by number of claims and 26% by value.

Most of the wind damage caused by Katrina occurred to the “building envelope”, comprising roof covering, walls and windows.

Andrew Higgins, Allianz Risk Consulting’s Technical Manager, Americas, says “poor workmanship and a lack of knowledge were the primary culprits” in building damage and destruction in New Orleans.

“After Katrina, Allianz developed enhanced roof surveys, placing greater scrutiny on condition and age of roofs.”

Apart from the insurance cost of cyclones rising dramatically – and with that the price of cover – the call for mitigation is increasingly being heard around the world.

Storm surge and flood are two major consequences of cyclones hitting coastal communities.

This leads to a range of other insurance issues – business continuity, for example. A lot of “meshing” between government and private coverage would be needed if the taskforce decides to go that way.

Will there be more and bigger cyclones crossing the Australian coast as a result of climate change? Like its overseas counterparts, the Bureau of Meteorology can’t say for sure.

But it does note “substantial evidence from theory and model experiments” that the large-scale environment in which tropical cyclones form and evolve is changing.

“Projected changes in the number and intensity of tropical cyclones are subject to the sources of uncertainty inherent in climate change projections,” the bureau says.

The bureau notes “wind speed is only one aspect of tropical cyclones and their impacts. The amount of heavy precipitation from all weather systems, including tropical cyclones, is likely to increase.” That means floods.

“Additionally, increases in storm surges and extreme sea levels are very likely to occur in association with tropical cyclones under future climate change.”

So the Federal Government’s financial exposure to future cyclones would be an “unknown known”. It could be nothing one year, billions of dollars the next. Cyclones in northern Australia have cost Australian insurers $3.4 billion in claims since 2008.

As the Insurance Council of Australia has pointed out, the cost of insurance claims in north Queensland is five times higher than in Brisbane, Sydney and Melbourne, with insurers paying out $1.40 for every $1 in premium.

The Government Actuary has also made the point – twice – that the level of premium being charged matches the risk being assumed. There is no sign of a so-called market failure. A significant number of insurers and underwriting agencies are working in the region, although some have cherry-picked the risks they are prepared to cover.

The taskforce’s interim report says a competitive insurance market would best serve the long-term interest of consumers in northern Australia, and “it is important that the options being considered support competition”.

“In addition, competitive pressures will be an important factor in determining whether some of the options for government intervention in the insurance market will flow through to a reduction in premiums,” it says.

Most important in the taskforce’s remaining work will be cost. How much will taxpayers have to hand over to subsidise property owners in northern Australia? How can a mutual work? Is a pool a better idea, with investors keen to shove money into reinsurance projects?

Against those factors is the cost of building resilient properties and retrofitting others in northern Australia. It’s a matter of number-crunching cost and benefits, which should be easy enough.

Whether or not a mutual insurer or a reinsurance pool “meshing” with private insurers’ policies is feasible, at the back of the Government’s mind should be the unknowns. Will global warming lead to more and bigger cyclones? What about the other impacts of cyclones – storm surge, flooding and infrastructure destruction?

Whether or not the taskforce’s final report delves that deeply into the cost-related issues of cyclone risks or sticks to its core tasks of comparing options won’t be known until November.

Against the certainty of making communities more resistant to the impact of cyclones is the uncertainty of tinkering with the system to achieve a cheaper insurance product without, apparently, disturbing competition in the market.

A government committing to pay for cyclone damage without knowing the true scale of the risks it’s assuming would seem foolish – especially when there is an entire industry capable of doing the job at no cost to the taxpayer.