California’s heavy reliance on regulation to address insurance problems provides an example of what not to do in dealing with the issues, Insurance Council of Australia (ICA) CEO Andrew Hall told the National Press Club in Canberra today.

Three top US insurers have withdrawn from providing new home cover in the state, which Mr Hall says is similar to Australia in having a rising population and increasing development in catastrophe prone areas.

“They have very heavily tried to regulate the problems with insurance through laws, and I would say that at the end of that experiment we are seeing a disaster in insurance coverage,” he said. “We don’t want to make the mistakes that have been made in places like the United States.”

Mr Hall, who spoke on the topic “The protection gap and what it means for Australia” says there’s “no silver bullet”, but stressed ICA’s view that insurance taxes should be removed and that improved land-use planning decisions and resilience spending is critical for longer term risk reduction.

The Federal Government has committed to spending $200 million a year over five years through the Disaster Ready Fund, with funds being matched by states and territories on projects. ICA says there should be a rolling program that is also indexed to inflation, which would also benefit the Government given the amount it is spending on disaster recovery

Ideally there would be $10 billion available for mitigation, rather than $1 billion, and more funds may flow as it’s shown how the government and industry efforts can work effectively, Mr Hall said. There has been a “demonstrable mindset shift” on the part of Government regarding resilience, he said.

Australia’s Cyclone Reinsurance Pool, which aims to deliver premium reductions in high-risk areas was “perhaps a little bit oversold” by the previous Government in launching the scheme, and the upper percentage savings estimates “needed an asterisk and needed to be put in context”, he told the press club.

While some high-risk properties in areas such as Townsville and Cairns could get big reductions, the savings across the board are generally expected to be relatively minor.

“The reason for that is, what the government scheme is discovering is there was no profit sitting in the reinsurance of cyclone in Australia. When an insurable event happens in cyclone it is very expensive,” he said.

“It is an important scheme. We need to see how it works, and how it plays out, but sometimes these pools don’t deliver all that they are promised to.”

Large insurers were given until the end of this year to join the scheme, which is backed by a $10 billion Federal Government guarantee, while smaller firms have an additional 12 months.

Mr Hall says insurers’ investments are benefiting from rising interest rates, and the pace of premium rises may moderate if Australia experiences a relatively quiet summer this year.

“I think we will see moderation of that trajectory of the increase, but they are not going to return back to the levels they were in 2016,” he said.

Reinsurers have changed their view of Australia, he said, after previously seeing it as a good hedge against events in the northern hemisphere such as Japanese earthquakes, or Florida hurricanes.

Assistant Treasurer Stephen Jones led a delegation with the ICA to London and Munich recently that involved meetings with global reinsurers, brokers and Lloyd’s.

The message was that Australia remains a very important market to reinsurers, but they have lost a lot of money in the last few years, that needs to change, and Australia has a “five-year window to turn things around”, Mr Hall said.

Ensuring action is taken involves federal, state and local governments.

“We have this tri-level challenge in Australia to try to get all the balls lined up to make sure the right decisions are made moving forward so we can reduce that risk,” Mr Hall told the press club.