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Pricing debate: the north will rise again

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Granted it’s only a preliminary report, but one can’t help a sense of deja vu reading the Australian Competition and Consumer Commission’s (ACCC) initial thoughts on its continuing northern Australia pricing probe.

The report, released last week, again underscores the complexities of the region’s long-running insurance affordability problem.

Old divisions remain, and unless these are somehow bridged it is difficult to see how the ACCC inquiry will end up any different from its predecessors.

The commission’s observations show a pattern that has been found over and over by earlier probes: insurers and consumers remain as estranged as ever over the pricing of risk.

Premiums are rising in the north at a much faster pace than elsewhere. Between 2007/08 and 2016/17, average combined home and contents premiums surged 23%-67% for northern residents, and 16% for anyone outside the north.

In 2016/17, northern property owners paid an average $2000 to insure their homes and contents, about double what it cost elsewhere in the country.

It’s no wonder residents in the north are frustrated, confused and even disillusioned.

Homeowners who attended the ACCC’s public forums talk of being exploited by insurers, of being charged excessively to subsidise other regions. In short, they want to know why they are penalised for living in the north.

For the industry, the answer is and always has been to do with risk, and the cost of dealing with that risk.

The north is far more vulnerable to major natural catastrophes than other regions: the country’s costliest cyclones – Tracy in 1974 and Debbie last year – are just two of dozens that have affected the region.

“There is not a good understanding of the factors that drive insurance premiums,” National Insurance Brokers Association CEO Dallas Booth told insuranceNEWS.com.au.

“It’s not well understood in the community and it is difficult. It’s no surprise that those comments get made. We all live in the same country, but there are real factors that are highly relevant to explain the differences.

“This is something we have said in our submission to the ACCC. You’ve got to look at the totality of experience and not just look at premiums … The challenge across northern Australia is far more complicated than just at looking at price.”

The Insurance Council of Australia’s submission to the ACCC inquiry says the northern insurance market is small, accounting for just 4.6% of Australian addresses, but is exposed to large, frequent natural disasters.

Post-disaster rebuilding can cost up to 42% more than in the south. Cyclone Debbie, which hit north Queensland, led to insured losses of more than $1.71 billion.

The Insurance Council has welcomed the chance to discuss the premium situation with the ACCC, with spokesman Campbell Fuller saying the inquiry is “timely, and the industry has provided extensive data and facts to the ACCC on risks, premiums and competition”.

“We look forward to further discussions with the ACCC on why insurance premiums are more costly in remote and cyclone-prone regions when compared with regions and cities that are not regularly exposed to cyclones, and that have greater access to trades, services and supplies at competitive rates,” he told insuranceNEWS.com.au.

The ACCC promises its next report, due on the Treasurer’s desk by November 30, will offer more insights into the home, contents and strata insurance markets.

“The November report will be important,” the commission says. “It will explain to the people of northern Australia how we believe the home, contents and strata insurance markets are really working.

“It will also discuss any concerns or problems that we have identified so far and make our initial recommendations to government and industry about what we see as any opportunities for change.”

A final report isn’t due until November 2020, and the ACCC has vowed to improve the “fair working” of the market.

It remains to be seen if the commission will base its findings around the concept of fairness, and whether politicians will one day find the intestinal fortitude to accept the findings of so many earlier reports and studies that agree living in the north carries special risks that have to be paid for.