Insurance bill for damage caused by Cyclone Debbie in Queensland and New South Wales is predicted to top $1bn
Experts have argued against subsidising insurance premiums for people in cyclone or flood-prone areas as the multi-million dollar cleanup continues after Cyclone Debbie, saying that will only provide short-term relief.
The insurance bill for damage caused by the cyclone, which struck near Airlie Beach on 28 March before causing widespread damage in northern Queensland and extensive and ongoing flooding in the state’s south-east and northern New South Wales, reached $410m on Thursday and is predicted to top $1bn.
A number of homes and businesses, particularly in the NSW town of Lismore, were reportedly uninsured or without flood insurance, because premiums for flood insurance had climbed as high as $30,000 a year.
It has sparked renewed calls for a review of the insurance regulations covering natural disasters.
But Justine Bell-James, an expert in environmental and insurance law from the University of Queensland, said moving to reduce premiums just pushed the cost of recovery on to government and would not reduce the scale of the damage.
“If we are just covering the cost of the premium that isn’t going to improve anything in the future,” Bell-James told Guardian Australia. “All the other costs – loss of income, loss of residence, psychological damage, are still going to occur. We are going to have the same problems in the future with insurance premiums going higher and higher.”
Bell-James said funding should instead go toward mitigation measures such as flood levees and ensuring houses are built to a cyclone standard.
That was the conclusion of a Productivity Commission report following the 2011 Queensland floods, which recommended the federal government increase disaster mitigation funding to $200m a year, and also the conclusion drawn by the northern Australia insurance premiums taskforce in 2016.
Bell-James said existing mitigation measures – such as the flood levee in Lismore, which was breached when flood waters reached the town last week – should also be reviewed to ensure they can withstand more severe flood and storm events under climate change.
“We use the language of a one-in-100-year flood, but what that really means is there’s a 1% chance of that flood happening any given year,” she said. “Under climate change, that could increase to a 5% or even 10% chance.”
Insurance Council of Australia spokesman Campbell Fuller said government intervention in the insurance market “would have little impact on affordability, would risk encouraging inappropriate development, and would expose taxpayers to billions of dollars of losses”.
Fuller said the industry was pushing for a greater government spend in permanent mitigation measures, including a stricter land use planning and building codes. He also defended the availability of flood insurance, saying 96% of all household policies included flood insurance, up from 3% prior to the 2011 floods.
“The premium charged reflects the flood or other natural hazard risk to each property based on the latest available government data and the insurer’s underwriting criteria,” he said.
Insurance premiums in northern Queensland increased by 80% between 2005/2006 and 2012/2013, the period covering Cyclone Larry, the Mackay storm, Cyclone Yasi, and the Brisbane floods, according to a 2014 report by Australian government actuary Peter Martin. Premiums for Brisbane in the same period increased by 45%, while premiums in Sydney and Melbourne increased 12%.
Choice spokesman Tom Godfrey said the price increase was unsustainable and left many people in the highest-risk areas unable to afford insurance. “When homeowners can’t afford insurance in disaster prone areas, there’s clearly a big problem with the market,” he said.
Susan Quinn, insurance policy expert from the Consumer Action Law Centre, said there was currently no requirement that coverage offered by insurance companies is appropriate for the person seeking insurance, so long as the limits of the policy were clearly set out in the policy documents, which 80% of people do not read.
“Ultimately that assumption is that you buy insurance and automatically assume that is going to cover you for the things that might happen to your house, but that’s not guaranteed under law,” she said.
Quinn said updating the minimum standard cover definition, which was set in 1984, and requiring insurance companies to explicitly state when they are offering less than standard cover, would make things fairer for consumers.