The Federal Government is to establish a taskforce to investigate creating a government-run reinsurance pool or mutual cyclone insurer in northern Australia to reduce home, contents and strata premiums.

The Northern Australia Insurance Premiums Taskforce will examine whether the Government can support or set up either of these entities.

“The taskforce would also assess the merits of other policy options that… exist or are put forward by stakeholders during consultation,” Assistant Treasurer Josh Frydenberg said.

A senior official will lead the project, supported by staff from the private sector, government departments and a panel of industry experts in insurance and reinsurance.

“Insurance costs in north Queensland are five times higher than in Sydney and Melbourne for strata insurance and two-and-a-half times higher for home insurance,” Mr Frydenberg said.

“The biggest driver of these higher prices is cyclone risk. Similar issues exist in other cyclone-prone regions of northern Australia.”

Improving affordability will help address underinsurance, ease families’ living costs and support the region’s economic development, he says.

The taskforce will operate for six months, delivering an interim report after three months, followed by final recommendations.

The announcement follows months of lobbying by federal MP Warren Entsch, who last week took a submission to Cabinet which was approved, proposing to set up a reinsurance pool or a mutual-style insurer owned by policyholders.

Mr Entsch says the announcement of the taskforce, which is costing $2 million, will allow the creation of business models for firstly the reinsurance pool and secondly a community-owned northern Australia mutual insurer to provide cyclone-specific cover.

“Getting where we are today has been about going down every avenue to prove that we don’t have access to affordable insurance here in Far North Queensland – which is, in effect, market failure,” Mr Entsch said today.

While the original idea of a mutual entity came from the Cairns Chamber of Commerce, says he has also received “outstanding support” in preparing the submission from Regis Mutual Management and international reinsurer Willis Re.

“I have no doubt that we would not have got to this stage without the very strong support of the Prime Minister himself and our Assistant Treasurer Mr Josh Frydenberg,” Mr Entsch said.

“I’m looking forward to working with the Prime Minister’s Office as we move into the next phase when this taskforce begins conducting its assessments.”

A white paper from the federal parliamentary committee seeking ways to develop northern Australia – chaired by Mr Entsch – may be released before the May budget. The cost of insurance will feature in the white paper.

An Insurance Council of Australia spokesman told insuranceNEWS.com.au the council “welcomes the Government’s positive and consultative approach”, and is consulting with members on a response.