The insurance industry has given a lukewarm response to plans for a community-funded mutual insurer to provide cyclone coverage in northern Australia.

On March 30 the Federal Government announced plans to create a taskforce to consider options for reducing home, contents and strata insurance premiums in the region.

Assistant Treasurer Josh Frydenberg has floated the idea of a government-run reinsurance pool and a community-owned mutual insurer to provide cyclone-specific cover.

Cairns-based Joe Vella Insurance Brokers MD Joe Vella says a national mutual may be feasible, but one limited to cyclone-hit communities, without the ability to spread risk, would be problematic.

“I’m not going to be negative because it’s too early to judge, but I hope they [the Government] are going to be aware of what the costs would be before going down that path,” Mr Vella told insuranceNEWS.com.au.

“There would be problems with the long-term funding of a mutual. If the idea were to get legs, I don’t see it having any longevity unless it’s funded nationally.”

Instead of the two options raised by the Government, Mr Vella believes the answer lies in deducting the GST and stamp duty on insurance. He says these imposts add 20% to premiums.

National Insurance Brokers Association CEO Dallas Booth is also doubtful about the mutual proposal, telling insuranceNEWS.com.au the idea makes him “nervous”.

“Mutuals normally don’t have recourse to additional capital, but as we have seen with natural disasters in the past five or six years, insurers have required recourse to additional capital,” Mr Booth said.

“Mutuals might have a role where there are fairly predictable loss scenarios and you can spread the cost of loss across participants, but cyclone catastrophes are less predictable and protection against the unpredictable is expensive.”

IAG CEO Personal Insurance Andy Cornish welcomed the announcement of the taskforce.

“We strongly support the move to establish a government-led taskforce because we need a national conversation between policymakers, industry bodies and customers to achieve the best social and economic outcomes for the communities affected,” he said.

The composition of the Northern Australia Insurance Premiums Taskforce has yet to be announced.

It will operate for six months, providing an interim report after three months. The Government has allocated $2 million to its operation.

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