After many years of insisting the only solution to insurance affordability challenges is to reduce the risk, the industry and federal government now admit something else is needed.

As revealed by insuranceNEWS.com.au last week, the Insurance Council of Australia has agreed to investigate options for a “partnership arrangement with government”, including a flood pool and direct subsidies.

Meanwhile, the Department of the Prime Minister and Cabinet has announced the establishment of the Insurance Affordability and Natural Hazard Risk Reduction Taskforce.

Details are scant on both sides. insuranceNEWS.com.au asked the government for more information on the taskforce – who’s on it, what are its objectives, how is it funded? But answers are not yet forthcoming.

Likewise, members taking part in ICA-led discussions have been tight-lipped about the direction they’re taking.

But the developments are probably two sides of the same coin, as the industry and federal government look to build on recent collaboration.

At ICA’s annual dinner last week, president Nick Hawkins and Assistant Treasurer Stephen Jones took part in a “fireside chat”, and it was clear they are in sync.

Mr Jones says his trip to Europe last year with insurance leaders was “one of the most valuable things” he has done as a minister, and it fostered a “team Australia” mentality that has endured.

The message on reducing risk will continue – ICA says more must be spent on mitigation and Mr Jones accepts we “need to stop doing dumb things” on land use planning.

But there is acceptance from both that, in the short term, more is needed. Home insurance premiums are rising at an alarming rate and flood-affected residents face an uncertain future.

“Dealing with affordability means dealing with the risk,” Mr Jones said, but he added: “There might be some additional things we need to do.”

Mr Hawkins said: “We just can’t invest enough fast enough to deal with some of these risk issues, so there has to be some transition.”

So what happens next?

ICA CEO Andrew Hall says while there are a range of views, he believes there is clarity on the fundamental aim – to close the protection gap.

Forget inflation, some properties are being priced out of insurance due to genuine risk issues, and the threat hanging over products that allow customers to opt out of flood will only increase the pressure.

There are some properties where no amount of in-home mitigation will solve the challenge.

“You’re going to have to find a way of making sure the people who live in those high-risk areas, that can’t do anything about it themselves, have got some ability to provide cover,” Mr Hall told insuranceNEWS.com.au.

All options are worth exploring, and there’s no clear timeline for discussions or deadline for a decision.

But he says progress is being made, and it seems like there’s no going back.

While some in the industry might continue to argue any intervention will distort markets and risk signals, ICA and the government appear to be on the same page.

Reducing the risk is the only long-term answer. It always has been. But in the short term, something else is needed.

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