Along with big-ticket funding for mitigation projects, the first Budget under the Albanese Government is also looking to drill down into the details of some tough insurance issues.

Details are scant, but the Budget announces a Hazard Insurance Partnership and Strategic Insurance Project and outlines measures aimed at addressing rising premiums and helping communities be better prepared for disasters.

One of the documents sets out the Government’s thinking: rising natural hazards are leading to rising insurance costs, this leads to people buying less or no insurance, and that increases the harm they suffer and the costs governments pay. These issues will only get worse with climate change.

The massive cost of extreme weather events has placed pressure on the insurance industry and has spurred action by a Government seeing the benefits of boosting resilience and ensuring insurance works as effectively as possible, as more money is spent on disaster relief and recovery.

Financial Rights Legal Centre Policy and Advocacy Officer Drew McRae says the insurance-related actions put forward in the Budget, including a review of the standard cover regime, are positive.

“I think it is just clear now that we are living in an age where extreme weather events are more and more common, they are not 1-100-year, and we are going to have to deal with them and their impact upon our insurances and the way we live,” Mr McRae tells insuranceNEWS.com.au

The Budget package focuses on identifying pressing insurance issues in disaster-prone areas, targeting and testing solutions to reduce risk and premium costs and supporting better consumer outcomes through more affordable cover and insurance products that are better understood.

An affordability, underinsurance, and non-insurance database will be established by the Australian Climate Service, helping to fill an information gap highlighted at a Senate committee inquiry into the cyclone reinsurance pool legislation.

“There are pockets of data in many places, but it’s not comprehensive and it’s perhaps not drawn together in a way that enables a good and robust fact base to be developed to understand some of these issues,” Australian Prudential Regulation Authority Deputy Chairman Helen Rowell said then.

A mitigation solutions knowledge-base will provide information on risk-reduction options for properties, and scoping work will identify opportunities for public-private partnerships to fund risk reduction investments that put downward pressure on premiums.

The Government also says it will develop standard definitions “for certain natural hazards in insurance contracts” and review the standard cover regime to improve consumer understanding of insurance products.

Pressure for standard definitions for perils in addition to flood date from before the Hayne royal commission. A Senate general insurance review in 2017 recommended action, Treasury undertook preliminary consultations in 2019 and the Australian Competition and Consumer Commission three-year Northern Australia Insurance Inquiry, completed in 2020, took up the issue.

Mr McRae says a review must look not just at hazard terms such as flood and fire but also policy terms around maintenance, wear and tear and defects, which are fought over “way too often” in complaints where cover is declined.

“The review needs to be a complete holistic look at insurance terms. You can’t just look at those definitions that relate to natural hazards in isolation,” he says.

Mr McRae says the proposed mitigation measures knowledge base also should be linked to premium discounts so people are rewarded for works undertaken.

The Budget formalised the Government’s previous commitment to investing $200 million a year on resilience through the Disaster Ready Fund, as it also jointly funds buy-backs and mitigation improvements for homes affected by this year’s floods in Queensland and northern NSW.

Prime Minister Anthony Albanese last week also said that land use planning will be on the agenda for the next National Cabinet meeting of federal state and territory leaders.

“We need to stop development in floodplains, for a start. In some places it's still continuing and we need all state and territory governments as part of this exercise,” Mr Albanese told Sunrise on Friday.

“When the National Cabinet next meets, we will be discussing how we make sure that we just get better planning. In too many of these areas we've had homes built in areas that are just inappropriate.”

The Insurance Council of Australia says there’s been an historic shift in the right direction to better protect homes and communities from the impacts of natural disasters.

“Given the impacts of worsening extreme weather that are being felt all over the country, the community expects industry, governments, and stakeholders to work together,” CEO Andrew Hall said. “Importantly, [the Budget] announcement includes the creation of a mechanism to allow that to happen through the Hazards Insurance Partnership.”

The Budget highlights the challenges ranging from the big picture requirements of major mitigation spending through to the fine details of policy wordings as they are understood by consumers. The prosperity of people living around the country over the longer term depends on delivering the right solutions.