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Affordability

Insurers welcome release of draft Reinsurance Pool Bill

December 3, 2021 by Pha Tran

Home Affordability

Insurers welcome release of draft Reinsurance Pool Bill

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News release

Friday, 3 December 2021

The Insurance Council of Australia (ICA) today welcomed the release of draft legislation intending to establish a reinsurance pool for cyclone and cyclone-related flood for privately-owned homes, strata corporations and small businesses insurance policies.

Following the Government’s announcement of a reinsurance pool in May the sector has engaged constructively with Treasury during its consultation phase.

Insurers will now need to investigate and test how the model will operate to drive down premiums and improve availability for cyclone and cyclone-related flood and we look forward to further engagement with Government over the next two weeks of consultation on the draft Bill.

The 2020 Northern Australia Insurance Inquiry undertaken by the ACCC supported insurers’ pricing practices, finding the main driver of premiums in northern Australia was the higher risk of natural perils like cyclone and cyclone-related flood.

The same inquiry found that in 2018-19 insurers in northern Australia lost approximately $208 million, and over the 12 years from 2007-08 suffered aggregate losses of $856 million in real terms in the region, highlighting the pressure insurers are under to deliver for customers in a way that is financially sustainable.

Quote attributable to ICA CEO Andrew Hall:

Insurers welcome the release of the reinsurance pool draft legislation for review and thank the Government for their efforts to deliver this important next step for a very complex issue.

We recognise that it is one part of the solution to improving affordability and availability of insurance for those living with the threat of cyclones in northern Australia.

Insurers have worked hard for many years in northern Australia to keep premiums affordable and coverage available.

To create a long-term and sustainable market for insurance, more must be done at all levels to lower the physical risks by improving resilience standards in building codes, reform of unfair state insurance stamp duties and levies, and making better land planning decisions into the future that factor in the climate impacts.

We look forward to ongoing work with the Government and the Australian Reinsurance Pool Corporation on the consultation.

 

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CEO’s Opening Statement: Inquiry into housing affordability and supply in Australia

November 3, 2021 by Pha Tran

Home Affordability

CEO's Opening Statement: Inquiry into housing affordability and supply in Australia

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News release

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.

Building codes

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.

Supply chains

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.

Tax reform

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.

 

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Business Advisory Council’s inaugural meeting

October 20, 2021 by insuranceca

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Business Advisory Council’s inaugural meeting

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News release

Wednesday, 20 October 2021

The Insurance Council of Australia yesterday convened the first meeting of the Business Advisory Council, which was established last month to find solutions for the issues impacting affordability and availability of commercial insurance products for the small and medium-sized business sector.

Representatives from key industry groups attended yesterday’s meeting of the BAC, focusing on how insurers and business can work together on meeting market gaps and lowering risk drivers, particularly in relation to professional indemnity and public liability cover.

The BAC was established in response to recommendations contained in the final report of the Independent Strategic Review into the role of the private commercial insurance market undertaken by industry expert John Trowbridge.

The representatives of the small and medium-sized business sectors, insurance brokers, underwriters and the ICA engaged in a productive and constructive meeting with all parties afforded the opportunity to ventilate issues around the affordability and accessibility of insurance faced by some SME sectors.

The representatives outlined the current difficulties small businesses are facing in accessing affordable insurance. Concerns were also raised about the role of state and territory governments in mandating insurance for licensing requirements and accessing government procurement, which puts more pressure on small business which can’t afford such high levels of cover.

The meeting was chaired by respected industry veteran and outgoing CEO of the National Insurance Brokers Association (NIBA) Dallas Booth and was attended by representatives of the ICA, NIBA, the Council of Small Business Organisations Australia, the Australian Chamber of Commerce and Industry, the Australian Small Business and Family Enterprise Ombudsman, the Office of the NSW Small Business Commissioner, Consult Australia and the Underwriting Agencies Council.

The BAC will provide its recommendations as they are developed directly to the ICA Board, which includes the CEOs of Australia’s largest insurers.

Comment attributable to Andrew Hall, CEO Insurance Council of Australia:

Insurance is an important part of any business operation, and we hope this council can provide an effective mechanism to have constructive engagement between insurers, brokers, underwriters and advocates for small and medium-sized businesses.

We thank participants for their engagement on these issues and the goodwill from all parties to explore all commercial solutions within the current hardened market for insurance.

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New measures to improve insurance availability and affordability for SME sector

September 20, 2021 by insuranceca

Home Affordability

New measures to improve insurance availability and affordability for SME sector

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News release

Monday, 20 September 2021

The Insurance Council of Australia (ICA) today announced measures intended to improve the affordability and availability of commercial insurance products for the small and medium-sized business sector, including the creation of a Business Advisory Council to collaborate on solutions to these issues.  

The measures are in response to recommendations contained in the final report of the Independent Strategic Review into the role of the private commercial insurance market undertaken by industry expert John Trowbridge.  

The Business Advisory Council will bring together business and insurance sectors with the aim of working through practical solutions to insurance availability and affordability issues, most particularly for professional indemnity, public liability, and business interruption cover. These will be considered at a sector level and not for individual enterprises. 

The Advisory Council will provide reports and recommendations directly to the ICA Board, which includes the CEOs of Australia’s largest insurers.  

It will also participate in an ICA-led examination of the feasibility of business interruption cover providing protection against future pandemics. 

To be chaired by respected industry veteran and outgoing CEO of the National Insurance Brokers Association (NIBA) Dallas Booth, it will include representatives of the ICA, the Council of Small Business Organisations Australia, the Australian Chamber of Commerce and Industry, the Australian Small Business and Family Enterprise Ombudsman, and the Office of the NSW Small Business Commissioner.  

NIBA and the Underwriting Agencies Council will participate as required and will separately work with the ICA to facilitate greater access by brokers to underwriters to enable more understanding of and dialogue on underwriting decisions.  

Mr Trowbridge’s final Review found that in the context of a hardening insurance market there is no one-size-fits-all solution to issues of affordability and availability for SMEs and that solutions require collaboration and goodwill between the insurance sector, SME sectors, and governments. 

The final Review includes 13 recommendations which broadly fall into three categories: improved engagement between insurers and SME sectors; better understanding of insurance by SME policyholders; and advocacy to government and transparency. The ICA supports all recommendations of the Review.  

Other measures announced today in response to the Review and its recommendations include:  

  • The creation of an ICA Board committee to consider proposals by the Advisory Council to intervene where no single provider of cover exists 
  • An examination of the simplification of commercial policy definitions and documentation  
  • Consideration of consistent industry-wide protocols for situations where significant increases occur on already high-cost premiums 
  • Continued support of work to improve the transparency of broker fees 
  • Improved engagement with government to ensure policy development and implementation takes account of overt and latent insurance issues, and to reform insurance taxes and levies  
  • Further development of risk management and mitigation advice and education  
  • Advocacy to expand public availability and improve useability of the National Claims and Policies Database held by APRA 

The ICA and the Business Advisory Council will act in compliance with competition laws and where required will seek regulatory approval for any proposed recommendation or action.  

The Business Advisory Council will convene its first meeting in coming weeks. A review of progress on the recommendations of the Independent Strategic Review will be undertaken in 12 months.  

The Review, the ICA’s response, and submissions received during the consultation period are available at insurancecouncil.com.au.  

Comment attributable to ICA CEO Andrew Hall: 

The ICA welcomes the final report of the Review into the role of the private commercial insurance market and thanks John Trowbridge for this important piece of work, which confirms there are issues in the market but no one silver bullet to fix them. 

In establishing the Business Advisory Committee and other measures the ICA is responding to a key theme of the Review: solutions where they exist will require a concerted effort between the insurance sector, small business and government. 

We are pleased this high-calibre group will be chaired by Dallas Booth, whose extensive experience in insurance and broking brings to the table the vital intermediary skill needed. 

The Advisory Council will look at how to address market gaps in various lines of cover and to evaluate what the risks and solutions could be for sectors such as carnivals, caravan parks, adventure parks, financial advisers, and building professionals. 

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Role of the Private Insurance Market – Independent Strategic Review: Commercial Insurance

September 20, 2021 by insuranceca

ICA releases independent paper on commercial insurance issues

May 20, 2021 by insuranceca

Home Affordability

ICA releases independent paper on commercial insurance issues

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News release

Thursday, 20 May 2021

The Insurance Council of Australia (ICA) today released for consultation an independent review that sets out options for tackling the availability and affordability of commercial lines of insurance, particularly for small and medium sized enterprises (SMEs). 

As announced in February, the ICA commissioned former insurance executive and regulator John Trowbridge to conduct an independent review of these issues and present possible solutions. 

The independent review released today finds issues around affordability and availability for SMEs are centred on public liability, professional indemnity, directors and officers, and business interruption cover.

The review argues that while there is no one-size-fits-all solution to these issues, solutions do exist but they will require collaboration between insurers, small businesses and government.

The 16 options identified in the Trowbridge review fall into three broad categories:

  • Awareness options such as standard documentation and advice and education on risk mitigation
  • Insurance industry options such as underwriting consortia and industry association accreditation and standards
  • Government-related options such as the removal of taxes and charges and collaboration to reduce regulatory barriers

The  ICA will conduct a one-month consultation with stakeholders, following which a final response to the paper will be prepared for the ICA Board.

The ICA and Council of Small Business Australia yesterday held a roundtable on issues of availability and affordability of insurance for small business, which included a presentation from Mr Trowbridge.

Quote attributable to ICA CEO Andrew Hall:

The ICA engaged John Trowbridge to undertake his independent review to provide a summary of potential solutions to problems that have been challenging sectors of the economy for some time.

As risk increases so do insurers’ costs; as a result premiums may rise impacting the availability and affordability of some categories of insurance for certain sectors.

While some small businesses are facing challenges in accessing the insurance they need to operate, in many of these categories insurers are under pressure to provide a profitable product so solutions are often difficult to determine.

The Trowbridge review shows that insurers are serious about engaging with these issues for the benefit of individual commercial policyholders and the economy as a whole.

PDF- ICA releases independent paper on commercial insurance issues

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