Wednesday, 3 November 2021
Thank you. My name is Andrew Hall, Chief Executive of the Insurance Council of Australia. The Insurance Council is the peak body representing general insurers.
General insurers provide Australians with 43 million business and household policies each year and pay more than $166 million dollars in claims every working day.
The family home is an Australian’s most important asset. Insurance helps many Australians purchase their home earlier than they otherwise could. Insurance also helps them protect that asset once acquired.
Insurance prices the risk to any asset, and ensuring that those risks are mitigated to the best of our ability is key for both protecting the home and positively impacting housing affordability.
Today I would like to briefly comment on 4 key areas for insurers: land use planning; building codes; supply chain impacts on building and lastly State tax reforms.
Land use planning
As outlined in our submission to this inquiry, enhanced building codes and robust planning controls are key to achieving better housing affordability.
Australia has seen the unintended consequences from building homes on flood or fire prone areas, and consideration of these and other hazards should be central to any supply side policy discussions seeking to address housing supply and affordability.
The Royal Commission into Natural Disaster Arrangements identified that land-use planning needed to be brought into consideration when identifying risk to life and communities.
The evidence of the impacts of poor planning decisions have been seen across decades of summer bushfire or flooding disasters.
The pressures on release of land to enable ongoing development too often supersedes the adequate and necessary review of whether it safe to put homes there at all.
The 2020 Royal Commission into Natural Disaster Arrangements called for reforms to the National Construction Code, changes to land-use planning decision making, more insurer guidance around retrofitting, and better communication of natural hazard risk information to individuals.
The Federal Government supported all of these recommendations, and they need to remain top of mind when making any further recommendations about the availability of land and the impact of housing.
Similarly, sub-par building codes and standards can have a devastating impact on housing affordability. A 2019 report by Equity Economics estimated a cost of $6.2 billion is needed to address safety and building defects in Australia.
The Insurance Council and its members are leading a program to improve the resilience of Australian buildings. Insurance plays a key role in the design, construction and maintenance of the built environment.
Currently, building in Australia occurs to a minimum standard mandated by the National Construction Code administered by the Australian Building Codes Board.
While setting the minimum benchmarks for building, they are constructed to ensure life preservation in the event of a natural disaster or similar catastrophic event. They are not constructed with property preservation as a core consideration.
The National Construction Code should be amended to ensure greater resilience for homes, and have stronger durability against extreme weather incorporated into building design and construction requirements.
Coupled with the immediate need for improved durability and resilience across the built environment is the quality of building output. In 2018, the Building Ministers Meeting Commissioned the Building Confidence Report, which identified serious quality and performance issues impacting building stock produced across Australia.
Without immediate action on a nationally consistent basis to address the required building reforms, this will continue to affect housing affordability.
The committee may also be aware that COVID-19 has created material issues across construction supply chains. As an example, the Producer Price Indexes released by the ABA highlights that COVID impacts have increased the price of construction and rebuild cost by up to 17.2 per cent in Western Australia alone.
Insurers are also facing a shortage of tradespeople to complete repairs due to the closure of borders and competing government building programs.
We support the intent of this inquiry to positively impact housing supply and affordability across the nation.
We would caution, however, that any uplift in activity on the supply side must be undertaken and assessed with robust planning arrangements and stronger building certification requirements in place if we are to positively impact housing affordability in the long run.
Lastly, I will take every opportunity available to remind people stamp duty and other levies imposed on insurance are retrograde revenue measures that numerous inquiries and reviews have found lead to household underinsurance or non-insurance.
Total government taxes and duties on homeowners can range from 20 to 40 percent on top of the cost of the premium depending on which state or territory you live in.
They effectively reduce the return on an insurance policy, meaning in some States people and businesses must pay far more to achieve an adequate level of protection.
The National Housing Finance and Investment Corporation supports the removal of stamp duty, with its research finding the reform would lead to more efficient use of housing stock and reduce volatility for state and territory revenue. This same thinking should absolutely apply to the insurance policies which protect these assets.
I welcome any questions from the Committee.