Disaster mitigation and resilience measures are the keys to improving premium affordability in high-risk areas, according to a senior reinsurer.

Swiss Re Australia and New Zealand Head of Property Treaty Underwriting David Sinai says reinsurance pools – among the options Canberra is considering for northern Australia – are not a tenable solution.

“In the case of insurance affordability issues, policy response should focus on promoting good risk management practices such as funding for mitigation works,” he said last week in a disaster management briefing organised by the Australian Science Media Centre.

“Policy responses should steer away from supporting poor risk decisions, including subsidising insurance premiums in high-risk areas. This type of approach is generally proven to be unsustainable because it doesn’t address the underlying risk issue.”

Most major insurers in Australia, with the exception of Allianz, are opposed to a government-backed cyclone reinsurance pool in the north. In submissions to the Northern Australia Insurance Premiums Taskforce, they say mitigation programs are the most effective way to reduce rates.

Mr Sinai says a “disconnect exists in funding high levels of risk with low or affordable premiums”.

“Furthermore, natural disaster pools are also subject to large shock losses, which can leave the pool insolvent.

“In many cases government guarantees have been called upon to meet the claims obligations of pools, putting further strains on economies.”

The industry is awaiting the release of the premiums taskforce’s final report, which the Federal Government received before Christmas.