Strata insurers have had to defend their claim that policies for buildings in northern Queensland were not knowingly underpriced in the past.

CGU Insurance National Manager Brad Robson told the Cairns hearing of the House of Representatives inquiry hearing on strata insurance last week that the northern Queensland market didn’t previously reflect the true risks.

“Our product may have been underpriced, but it was not underpriced knowingly,” he said. “The pricing was not adequate or accurate to offset the risk of taking on that business.” 

But committee member Shayne Neumann cited CGU’s written submission that stated the low pricing was due to competition.

“Now you are saying its is all to do with risk,” Mr Neumann said. “But wasn’t it to do with competition, according to your own submission?”

Mr Robson said there were a number of insurers in the market in the past, but many had exited.

“At that time it was during the growth period where market capital was cheaper than it is now,” he said.

“Reinsurance was cheaper and that may [have been] the contributing factor attracting more insurers to the market.”

Mr Neumann argued insurers had “fallen in love with north Queensland” so they charged strata owners a third of the price of the real cost of selling insurance and ignored the needs of their shareholders.

“Then somewhere in 2008/09, all of a sudden they fell out of love with north Queensland, fell back in love with their shareholders and decided to charge what they thought was the true commercial value,” he said.

Mr Robson denied this, saying the price rises were more due to reinsurance and weather.

“The different weather events that have occurred continuously during the last 10 years have put insurance companies under pressure to look at performance based nationally,” he said.

“What we do when looking at national results is to look at each product separately and then we break the product down in a more granular fashion to geographic locations.”

Mr Robson said the north Queensland strata market is only 3% of CGU’s total policy count.

He admitted more attention would have been focused on other markets given the low penetration of CGU in the northern Queensland market.

“There is a responsibility to our shareholders to ensure we are pricing the risk accurately, and we have had to respond to those key cost components having changed during the past few years.”

Zurich GM SME and Packages Shaun Feely told the hearing his company is paying out $115 in claims on every $100 collected from strata insurance policies.

“We are getting 30 or 40 claims in every 100 [policies],” he said. “If you are running a big personal lines portfolio, claims should be less than 10%.”