The federal government should create a permanent general insurance monitor to ensure competition and accountability as “hidden” granular risk pricing affects affordability for lower-income people in disaster-prone areas, the Financial Rights Legal Centre says. 

The centre has supported insurance pricing monitors associated with the removal of emergency services levies in Victoria and NSW and the introduction of the cyclone reinsurance pool, and is seeking a national position. 

People receiving risk signals through granular pricing often have little power to respond and insurers do not do enough to recognise or incentivise property-level mitigation even when policyholders have the resources, it says in a Senate inquiry submission.  

“The final problem with risk signalling through insurance premiums is that the pricing of insurance is opaque to begin with and it is very easy for insurers to point to rising costs and risks in a general sense without any accountability.” 

The centre says a monitor given the authority and resources to conduct research, particularly on pricing and disclosure, could promote “a well-functioning and competitive insurance market”. 

A Senate select committee chaired by Greens senator Mehreen Faruqi is examining climate risk impacts on insurance premiums and affordability. 

The Financial Rights Legal Centre acknowledges there are dangers from masking risk signals but says it would support a less granular pricing system for extreme weather-related risks. 

“We support everyone in Australia who are not members of the hyper-mobile elite to have affordable access to insurance regardless of the risk,” it says. 

“We fully recognise the arguments that it is better for individuals to pay a ‘fair price’ for insurance that accurately reflects individual risk, but we think that approach will simply force the most vulnerable in our society into even more vulnerable positions. If we want to have thriving regional communities, then there needs to be some risk pooling.” 

Mitigation investment, property buybacks and a revised approach to land use planning are critical, but in the short-term the government and the insurance industry need to do more to help homeowners under most pressure, it says. 

The centre reiterates some recommendations made in a consumer groups joint submission to the House of Representatives inquiry into insurers’ responses to the record 2022 floods. 

These include a government trial of subsidies for people who cannot afford insurance, while insurers should have to reflect property-level mitigation in proposed premiums and be encouraged to offer commensurate multi-year discounts. 

“Insurance affordability in a time of climate crisis raises issues concerning how our society should share the burden of responding to increasing extreme weather ... risks,” the centre says. 

“Leaving consumers and taxpayers to bear the consequences of decades of poor planning and climate change inaction is both inequitable and antipathetic to community resilience.”