A spate of natural disasters in north Queensland, from Cyclone Larry in 2006 to Cyclone Yasi in 2011, has really only affected southern Australians via the rising price of bananas. But the effect on property owners at the sharp end has been devastating.

The insurance market in northeastern Australia has gone into meltdown, with reinsurers and underwriters re-rating risk, in some cases putting cover beyond the reach of homes and businesses or even completely withdrawing it.

Talk to brokers in the north and they reveal some startling figures.

Peter Peirano, owner of Rockhampton-based Piranha Insurance Brokers, tells of a riverside property whose premium rose from $3800 a year ago to $9500.

Other horror stories include premium quotes on commercial properties rising from $5600 to $128,000 and from $14,000 to $120,000.

“We’ve seen premium rises of between 20% and 300-400%,” says Dallas Webster, Senior Account Executive with Aon in Townsville.

She says some of these increases follow the addition of flood insurance to policies, especially since 2011, but it’s not always the case.

It is more a question of supply. “Getting insurance in north Queensland as a whole is very hard, particularly anything north of the 26th parallel [which runs through Rockhampton], although Townsville is not as bad.”

Doug Olsen, Director of Far North Insurance Brokers, says insurers appear to be in “claw-back mode”.

He says this makes them unwilling to negotiate on premium quotes as they look to recoup some of the catastrophic losses of recent years and increase reserves for the future.

Brokers say north Queensland is in a sort of downward insurance spiral, with rising claims experiences leading to a lack of underwriters, which in turn makes reinsurance either unavailable or unaffordable – a process that feeds on itself.

Allianz Australia spokesman Nicholas Scofield puts it this way: “What we try to do is maintain a broad geographic spread, so don’t want to be over-exposed to places like north Queensland, where there is cyclone risk.”

While the region’s cyclone and flood risks have always been understood, Swiss Re’s Chief Property Underwriter for Asia Mike Mitchell says reinsurance pricing is now set using up-to-date loss models that rely on new information and more detailed mapping.

“There has been recalibration of those models as a result of what has happened recently in Australia and New Zealand,” he says.

Other factors include the cyclical nature of underwriting margins, inflation and population growth, plus more expensive housing in locations with greater flood and cyclone risk.

“In reinsurance, it’s not that we’re seeing people pull out,” Mr Scofield says. “But they are responding with changes in prices and terms and conditions.”

This is effectively pricing out some customers and making it almost impossible to insure certain types of business.

There is another factor at work: globalisation. As insurers become increasingly international, profit demands from shareholders mean they are no longer inclined to cross-subsidise risk in low-population areas from major centres with more stable climates.

The situation has led to demands for government reinsurance pools, flood defence projects and intervention to keep the northern regions affordable.

North Queensland Federal MP Warren Entsch has led the calls, backed by an Institute of Actuaries discussion paper.

Innisfail-based Mr Olsen agrees. “It’s not all about money. You strategically need people in Far North Queensland to populate the nation, to prevent incursions from people, animals and plants, and the agricultural industries up here add to the country’s bottom line.”

For its part, the Insurance Council of Australia prefers the market to rule, with some short-term government equalisation measures to help out when disaster strikes.

This is an issue with a long way to run before a solid solution is found. If there is a solution.