The Australian Competition and Consumer Commission (ACCC) has been asked to investigate lack of competition and the dominance of Zurich General Insurance in the north Queensland residential strata title insurance market.

The push for an inquiry is coming from State MP Bruce Billson and Federal Member for Leichhardt Warren Entsch, who say the current large increases and lack of capacity in the region can be traced back to price discounting to secure market share several years ago.

Mr Entsch alleges Zurich entered the market very aggressively, undercutting many existing insurers. As a result, companies such as QBE, CGU, Suncorp and Lumley had left the market.

He says the few companies remaining include a group that offers a very basic or restricted cover.

Mr Entsch told insuranceNEWS.com.au that once fewer insurers are competing, the cost of insurance is ratcheted up.

“Clearly there is a failure in the market,” he said. “We now find ourselves in the situation where there is little competition and insurance premiums in this market are now totally unsustainable.”

The House of Representatives inquiry into the insurance disaster response has been extended to cover strata title insurance, and will visit north Queensland in January. (See story in LOCAL)

Zurich told insuranceNEWS.com.au the cost of doing business in north Queensland has increased dramatically because of reinsurance costs and “rejects any suggestion that it deliberately underpriced its premiums to secure customers”.

It says the region is challenging for insurers. Zurich ceased writing new business in October 2010 but continues to support existing customers. Company executives have met Mr Entsch several times to discuss his concerns.

Mr Entsch says strata insurance pricing seems inconsistent with risk levels. He has examples of large price increases for modern residential unit blocks built to the latest cyclone standards against increases of a few hundred dollars for much older single homes.  One strata policy has increased over four years from $11,000 to $12,000 to $23,000 and most recently was quoted at $92,500.

He says insurance issues will affect the region’s economy, with some companies refusing to insure complexes with holiday units and the cost of insurance increasing body corporate fees by so much that investors are not buying property.

“The need for southern investment is absolutely critical for our economy and the region’s ability to provide the approximately 29,000 units of accommodation, which consist of a mix of residential and investment properties,” he said. “Should the current insurance crisis continue, this important sector of our economy will fail.”

Mr Entsch says some body corporates have looked at self-insuring. “However, the law states that you must have third-party personal insurance, and the insurance companies will not disconnect these two insurances.”