Reinsurance is keeping insurers out of the northern Queensland strata market, a broker claims.

North Queensland Insurance Brokers Compliance Manager Raymond Pavey told the Townsville hearing of the House of Representatives inquiry on strata insurance that overseas reinsurers are penalising local insurers for operating in the region.

“I believe reinsurance is the most significant factor in insurers choosing not to provide residential strata and other property insurance in north Queensland,” he told the inquiry.

“Insurers who operate in north Queensland are penalised by overseas reinsurance companies by way of a tropical storm zone premium loading.”

Mr Pavey said the more north Queensland business insurers have on their books, the higher the reinsurance loading.

“The more insurers withdraw from the north Queensland market, the more lopsided the books of business become in terms of risk held in north Queensland for the insurers who remain,” he said.

“Consequently the more costly it is for those remaining insurers to do business in north Queensland.”

Mr Pavey said a letter from underwriting agency QUS explaining why it had withdrawn from the strata market north of the Tropic of Capricorn blamed the cost of reinsurance for the move.

“I believe the answer is to attract insurers back to the north Queensland property market so as to spread the exposure,” he said.

“I propose a government-backed reinsurance pool for property held in north Queensland, similar to the terrorism insurance scheme.

“That then removes the main obstacle to insurers operating in north Queensland.”

Mr Pavey also proposes making insurers cover all of Australia as part of their Australian financial services licence.

“This would need to be accompanied by legislation that would prohibit pricing on the basis of geographical location.”