The Federal Budget could have been worse for the insurance industry, coming as it does from a government focused on slashing costs and raising revenue. Some of the decisions outlined in the budget are logical and at least one is little more than theft of an asset the Government never owned.

The approach to the north Queensland insurance issues are also a mixed bag.

The message is that there will be money for mitigation when it can be shown to work. There are few pointless gestures of the type that governments sometimes make to satisfy constituents – except for the plan to develop an insurance comparison website for north Queensland.

The National Insurance Affordability Initiative has been dropped, along with plans to establish an affordability council, which was announced in February last year but never appointed.

The $72.2 million saving from that will be redirected to addressing insurance costs in north Queensland, including $12.5 million over three years for engineering assessments of strata properties and unquantified funding for Treasury to set up a comparison website.

The flood mitigation works for Roma and Ipswich previously announced under the affordability initiative have been retained, but $50 million to raise the height of the Warragamba Dam has quietly been dropped, possibly because the proposal is still under investigation by a NSW Government taskforce.

The insurance industry has welcomed funding for the strata assessments but the comparison website decision has put insurers on course for a showdown.

Strata is so specialised and the risk so diverse that it’s hard to imagine a body corporate manager wanting to spend half a day filling in a form online only to be told to contact an insurer or a broker.

The major insurers, including those writing strata, home and commercial policies in north Queensland, have long-standing objections to so-called comparators. It’s hard to see how the Government can force them to participate in one, and it’s even harder to see what a comparator could do to ease the cost of home and contents cover when insurers and reinsurers have repriced the risk to reflect the realities, and most have withdrawn from the region, anyway. This won’t entice them back.

As National Insurance Brokers Association CEO Dallas Booth says, consumers don’t need a website, “they need advice from a competent, qualified professional insurance broker who can advise them on their best options and work to get the best deal from the insurers”.

Even then the “best deal” isn’t likely to be low enough to satisfy north Queenslanders facing hefty annual premiums. They’ll keep complaining to their local MPs, and they in turn will keep pressure on their ministers.

It’s hard not to contrast this comparator initiative with the actions of the New Zealand Government in the wake of the Canterbury earthquakes.

Insurers were castigated by angry New Zealanders following the quakes, but the Government didn’t join in. Instead Earthquake Recovery Minister Gerry Brownlee took a team to Reinsurance Rendezvous and Lloyd’s in 2011 to convince companies that will pick up most of the bill from Christchurch that a country of 4 million is still worth underwriting. 

There has since been a huge amount of work on building codes, collection of data and access to it. The Government has treated the insurance industry as an essential component, not as a recalcitrant that needs to be forced into line.

The budget’s allocation of $12.5 million over three years for strata inspections is a step in the right direction that will build on initiatives the industry has already taken to support greater research into individual buildings’ ability to withstand nature at its nastiest.

The Insurance Council of Australia also supports the new bushfire mitigation program of $15 million over three years, $10 million for flood mitigation in Roma and Ipswich in Queensland plus natural disaster resilience funding of $91 million over three years.

CEO Rob Whelan says mitigation is a long-term investment that protects communities for generations and pays back the original funding tenfold or more.

Meanwhile, when it comes to raiding the reserves of the Australian Reinsurance Pool Corporation (ARPC), this government is following the example of its predecessor. The pool built up a reserve in case policyholders ever faced a massive terrorism claim.

An ARPC dividend was introduced in the 2012 budget, with a $100 million one-off payment plus $75 million dividends annually over four years to compensate the Government for the $10 billion guarantee it provides.

The 2013 budget doubled the annual dividend to $150 million a year and that is being reduced to $450 million over four years, although during this time Treasury will investigate how to wind down the fund.

The ARPC has to pay the Government out of its claims reserves. The levy commercial building owners are forced to pay for terrorism protection is now being used to reduce the nation’s deficit. Call it what you will, it carries the stench of yet another tax on insurance-buyers.

Defence Services Home Insurance also appears headed for the chop, although supporters tell insuranceNEWS.com.au it provides a terrific service, is excellent value and, being self-funded, is not a burden on the taxpayer.

In summary, the insurance items in the budget didn’t grab headlines, but the continuing support of mitigation work will prevent the loss of assets and possibly save lives. 

The next hurdle for the industry will be the Treasury consultation on north Queensland insurance, with many questioning how the Government is actually going to make some of its proposals work.