Subsidised property insurance an important way to address the increasingly urgent problem of ballooning property insurance costs in high-risk regions, according to experts in the field. A scheme of that nature would keep home-owners in the insurance net but it would affect the price signal, said Paula Jarzabkowski, professor of Strategic Management at the University of Queensland’s business school. Ways of dealing with the loss of the price signal would require further decisions, she told the Australian Financial Review’s insurance summit in Sydney last month. “Then we have a cascading trade-off,” she said. “It’s not a single decision.”
The increasing frequency and severity of natural disasters such as floods and bushfires has led to soaring property insurance premiums in Australia’s hard-hit regional districts, rapidly leaving many property-owners adrift.
Fifteen per cent of properties in regional areas were now exposed to “unaffordable” insurance premiums – premiums higher than one month of the property-owners’ income, Actuaries Institute chief executive Elayne Grace said.
“Obviously in some regional areas it’s a lot more, it can be up to 60 per cent that flows through,” she added, noting the high insurance premiums were depressing property prices.
Jarzabkowski and her University of Queensland colleagues earlier this year released a paper titled Building Resilience: Linking Disaster Insurance and Risk Mitigation for a Sustainable future.
The report said that without insurance, the cost of clean-ups, temporary accommodation and rebuilding fall directly on household savings and government expenditure, potentially causing extreme financial hardship and entrenching disadvantage.
Principles used in France and Switzerland, including modelling on how to limit the government’s liability, could be applied in Australia, Jarzabkowski said. “Those principles are out there, and we could apply them,” she added. “We have the knowledge in Australia.”
A national risk and resilience rating system is a key recommendation of the Housing Resilience Action Plan 2030, a report by Monash academics, the independent Financial Rights Legal Centre, the Resilient Building Council, and others.
The Resilient Building Council had already conducted more than 63,000 home assessments, said Julia Davis, senior policy and communications officer at the Financial Rights Legal Centre. The Council also offered a free bushfire app to help property-owners self-assess risk.
“Fifty per cent of the general insurance market already gives discounts on these resilience ratings, with two more major insurers about to come on board,” she said. “In NSW, Victoria, and Queensland, they have 102 local governments on their waiting list.”
An over-arching national risk assessment agreement between banks, insurers, investors and community groups was the way forward, she added. “We know that consumers are desperate for this information,” she said. “We know that banks and insurers and households need a common language for how we’re going to assess risk, how we’re going to assess resilience.”
Over time, the effectiveness of resilience ratings and how much they reduce the cost of loss would become clear, she said, adding they should not be seen as a magical way to immediately reduce property insurance premiums. Rather, she said they were tools to help consumers “prevent their premium from doubling every year”.
“They feel like they have some control. they have some visibility over their risk, and they can actually make decisions about what to do next.”