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ACCC snubs reinsurance pool in latest northern Australia report

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The Australian Competition and Consumer Commission (ACCC) says a reinsurance pool isn’t the answer to soaring premiums in the north, but the Federal Government could push on regardless.

The ACCC is two thirds of the way through its three-year Northern Australia Insurance Inquiry, and published its second interim report today.

After considering submissions, it says a government reinsurance pool is not required because there is no issue with the availability of reinsurance or insurance.

It could improve affordability, but the gains are unclear and the costs could be significant.

“The level of premium reductions that would result from a government reinsurance pool in the absence of subsidised premiums is uncertain,” the report says.

“As a result, we do not consider that a government reinsurance pool would be an effective way to address affordability issues in northern Australia at this time.”

As has reported, insurers agreed to help Federal Treasury investigate the feasibility of a government-funded cyclone reinsurance pool following a meeting with Assistant Treasurer Michael Sukkar.

Mr Sukkar made clear he did not intend to wait for the ACCC’s findings before making progress on the issue.

Today’s report also rejects a government insurer as a solution, but welcomes direct targeted subsidies.

“While a government insurer or a reinsurance pool could also provide some relief from acute affordability issues, if the government did want to address insurance affordability by funding part of insurance premiums, we consider a direct subsidy is the most effective and efficient way to do so,” the ACCC says.

“A targeted subsidy, including both premium level and income eligibility requirements, could provide targeted premium relief to some consumers at lower cost, and more effectively, than other measures.”

The report highlights worsening affordability issues faced by residents and businesses in northern Australia.

The ACCC says home and contents premiums in the north are on average almost double those in the rest of Australia, and in some areas the difference is even greater.

In Port Hedland, WA, the average home and contents premium is $5256, almost four times the average of $1400 for areas outside northern Australia.

The ACCC says the rate of home non-insurance across northern Australia stands at about 20%, compared with 11% for the rest of Australia.

“Our report details just how expensive insurance has become in some parts of northern Australia, and that many households are opting out of insurance altogether,” ACCC Deputy Chair Delia Rickard said.

“These high premiums pose a risk to the resilience, liveability and prosperity of our northern regions.”

In previous reports the ACCC made a series of recommendations, which it says still stand today.

These include abolishing broker commissions, scrapping insurance taxes, and investigating a national home insurance comparison website.

Click here to read the latest report in full.