The cost of insuring strata properties in northern Queensland has started to fall after huge rises in 2011 and last year, but cover is still expensive and hard to obtain.

Home and business owners are also struggling with affordability, making insurance a hot topic in the region and generating a great deal of negative press for the industry.

It doesn’t bode well for the Federal Government’s plan to develop northern Australia that the cost of commercial and retail insurance is significantly higher than elsewhere.

Strata insurance and affordability in the north will be discussed at a meeting between Assistant Treasurer Arthur Sinodinos and insurance representatives on Wednesday.

James Cook University’s research on north Queensland strata prices highlights some of the problems of insuring property in cyclone-prone areas and makes suggestions for risk mitigation, but insurers are unlikely to return to the market on the strength of its recommendations.

Many quit the region in recent years after heavy losses from cyclones. The higher cost of the cover still available is blamed for a property slump in parts of Cairns and a lack of new development which is pushing rents higher.

The exit poses a dilemma for companies that stay in the market, because they come under pressure to accept more risk that may unbalance their portfolio.

Strata Unit Underwriters National Manager Brad Robson says the James Cook research is an important first step in identifying practical ways to improve resilience.

“We are committed to continuing to offer insurance solutions in north Queensland and helping to support communities in high-risk areas,” he told insuranceNEWS.com.au.

Mr Robson says there is no short-term solution. “Premiums must be priced at levels that support our operations sustainably.”

But some capacity has come into the market, according to Mark Lever, the CEO of strata peak body Strata Community Australia.

He says prices have stopped rising but the fall in cost is marginal – a view echoed by some in the insurance industry who believe strata prices have peaked.

Far North Insurance Brokers director Doug Olsen says the region continues to struggle with capacity problems in other lines and the strata situation is “diabolical”.

“The domestic market is probably not as bad, but it is pretty limited in the SME corridor,” he told insuranceNEWS.com.au.

Joe Vella, MD of Cairns-based Joe Vella Insurance Brokers, has noticed more capacity for some risks, “but it is not widespread”.

He says strata is “very, very expensive” and while pricing on commercial cover varies according to the industry, clients are responding to higher premiums by reducing their sum insured.

There are reports of commercial insureds approaching Lloyd’s underwriters, but Mr Olsen says most SMEs cannot sustain the hefty deductibles on named cyclones.

Homeowners are still experiencing hefty premiums – fees of $10,000-$20,000 for a house in Cairns are common, plus excesses of $5000-$10,000.

Mr Vella says some retail clients are turning to direct insurers that use compromised wording and service. He says there is channel conflict when a direct product is available from an insurer that does not offer cover via a broker.

“The clients are missing out on service but the problem is the broking fraternity wears the stigma of all the bad publicity that underwriters deserve.”

In the strata market, CGU subsidiary Strata Unit Underwriters is the major player, while Austagencies’ authorised representative Longitude began writing cover nationally in September last year. Vero provides security.

Longitude MD Jesse Borthwick says the company has brought capacity to property owners with higher asset values, including some very large properties.

It aims to be a market leader and will accept risk in northern Queensland, in proportion to its national portfolio and aligned to the amount of business in a region.

He stresses that Longitude will price for long-term sustainability. “Each risk has to stand on its own merits.”

In 2011, Cyclone Yasi cost insurers $1.4 billion while they were still addressing issues from earlier floods in Brisbane and regional Queensland.

The northern region’s relatively small population means it will take years for insurers to recover losses, and the high cost of protecting businesses and homes is unlikely to attract the population growth required under the Federal Government’s plan.

That is likely to be bad news for the insurance industry. If it is blamed for standing in the way of public policy, it could turn the Government’s thoughts to regulating a solution.