Friday, 25 June 2021

House Economics Opening Statement – 25 June, 9:15am Main Committee Room

Thank you, Chair, for the opportunity to give evidence and provide this opening
statement to the Committee.

My name is Andrew Hall and I am the CEO of the ICA. I am supported today by the
ICA’s General Counsel, Anne Knight, who is leading efforts in relation to the
business interruption test cases, and Aparna Reddy, General Manager of Regulatory
Policy for the ICA.

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.

Insurance is a key component of the economy, especially in a country like Australia,
where our natural peril risks are a constant reminder of the challenges we have in
protecting our assets.

The nation’s economic recovery following the COVID turndown is the envy of the
world. Lower unemployment and record levels of investment are all positive
indicators of the performance of the Australian economy.

Unfortunately, not all sectors of the economy are performing as strongly, and the
general insurance sector is enduring its most challenging circumstances for two
decades.

Insurer profitability over the 24 months ending March 2021 was down 64 per cent on
the preceding two years, and according to APRA the entire general insurance sector
only made a profit of $19 million dollars in the most recent March quarter, largely
because of the impact of recent natural disasters.

While over the last 14 months the Australian community has been focused on the
pandemic, since the devastating bushfires of 2019 we have also endured two major
flood events, a category 3 cyclone, two destructive hailstorms and a bushfire in the
Perth Hills.

Over the past three years insurers have paid out more than $7.4 billion dollars in
natural disasters claims, with more than $5.4 billion dollars paid out since the 2019
bushfires.

Insurers received more than 39,000 claims arising from the bushfires, totalling more
than $2.3 billion dollars. More than 95 per cent of these claims are now finalised and
paid, supporting those communities in their recovery.

Australian insurers are also impacted by global trends which influence underlying
costs, in particular the cost of reinsurance.

Insurance globally is currently in what is described as a hardening market, meaning
reinsurance is more difficult to obtain, risk appetites are very low, and in turn is
impacting the cost of premiums locally.

We are aware that the availability and affordability of some commercial lines of
insurance for small and medium sized businesses has become challenging.

In many of these categories insurers themselves are under pressure to provide a
profitable product, with gross loss ratios running at near 100%, so solutions are often
difficult to determine.

In November the ICA engaged former insurance executive and regulator John
Trowbridge to undertake an independent review to identify potential solutions to
these affordability and availability issues. His paper was released a month ago for
public comment and we are engaging with key stakeholders such as COSBOA and
other industry organisations to continue to work through these important but complex
market issues.

There is no single silver bullet for resolving these issues, but we are serious about
grappling with these issues for the benefit of small businesses and the broader
economy.

Another area where higher premiums are being felt is in northern Australia, and
insurers welcomed the Government’s announcement of a reinsurance pool to help
address this, and the $600 million dollars for resilience measures through the new
National Resilience and Recovery Agency.

We remain engaged with Government as it undertakes a detailed design of the pool
and establishes these new agencies over the coming months.

We welcome the renewed focus by Governments across the country to investing in
resilience. Reducing the risks are fundamental to maintaining a healthy insurance
pool to protect homes and businesses.

Underinsurance remains an endemic problem in this country, exacerbated by stamp
duties and taxes on premiums. We stand ready to work with Governments to help
inform consumers on how to take the right level of cover, which could provide billions
in return for communities to recover faster from these major events.

At the same time as we navigate the current market conditions, insurers have had to
respond to a significant regulatory reform as we have implemented the Hayne Royal
Commission’s recommendations.

We are committed to working collaboratively with the Government to strengthen the
confidence and integrity of the industry, and to ensure that insurance products
fully meet community expectations.

Insurers are also preparing for the start of a new industry Code of Practice on 1 July
– although some components of the new Code relating to consumer vulnerability and
financial hardship were already fast-tracked to provide additional support for
customers during COVID-19.

The updated Code of Practice seeks to meet evolving community expectations and
positively influence interactions with customers when buying or renewing insurance,
making a claim, or making a complaint.

The ICA will be rolling out an information and advertising campaign in coming
months to promote awareness of the new Code.

If I can turn to pandemic related issues and the business interruption test cases
which are currently before the courts.

The ICA has taken a coordinating role for insurers to have the BI issues determined
together through the courts as quickly as possible.

I will limit my comments this morning as an application for special leave to appeal the
ruling of the NSW Supreme Court in the first test case is listed before the High Court
later this morning.

A second test case has also commenced in the Federal Court which will determine
the meaning of certain policy wordings.

Although not a party to the proceedings, the ICA engaged on behalf of insurers with
AFCA to get agreement on both test cases, and our members are funding the costs
for all policy holders involved in this process.

As soon as final rulings are obtained from the courts, insurers will assess, and
process business interruption claims in an efficient, transparent, and consistent
manner.

Finally, like many sectors as we emerge from COVID 19, insurers are keen to see a
roadmap to reopen our international borders and reopen those areas of the economy
impacted by the pandemic, particularly travel and travel insurance.

A roadmap to reopening – with the confidence that once borders open, they will stay
open – will enable insurers to plan to again provide this crucially important service to
travellers.

We are happy to take questions from the committee. Thank you.

Thursday, 20 May 2021

The Insurance Council of Australia (ICA) today said the Queensland Government’s Budget announcement of just $10 million for household resilience and mitigation measures was a missed opportunity to better protect Queenslanders from extreme weather events. 

With just $3 million to be spent on new household resilience funding in 2021-22, the Queensland State Budget has failed to confront the enormity of the challenge to make Queensland homes and businesses more resilient to natural disasters.  

Queensland led the way with its Household Resilience Program to help eligible homeowners in coastal parts of Queensland improve the resilience of their homes against cyclones, but this successful program has not been renewed, leaving many Queensland homeowners without support for much-needed home building mitigation.  

The new Queensland Betterment Fund of $20 million, jointly funded with the Federal Government, is intended to reduce the cost of future reconstruction of public assets damaged by natural disasters.  

Other natural disaster resilience and mitigation funding in the Budget comes from the Queensland Resilience and Risk Reduction Fund, jointly funded with the Federal Government, which is expected to expend $14.4 million in 2021-22.  

In addition to the disappointing investment in resilience and mitigation, the ongoing failure to address stamp duty on insurance means underinsurance will continue to be an issue in the state with the greatest exposure to the impacts of natural disasters.  

Quote attributable to ICA CEO Andrew Hall: 

Insurers have been calling for some time for greater investment in resilience and mitigation measures, so it’s disappointing the Queensland State Budget fails to meet this challenge.  

The Federal Government’s recent allocation of $600 million over five years for new disaster preparation and mitigation programs and $40 million to make strata buildings in northern Australia more resilient to extreme weather potentially unlocks significant partnership investments with the states.  

Queensland should be looking to maximise these opportunities.  

More resilient communities, businesses, and households mean less disruption to life and faster recovery after a major natural disaster. 

On the revenue side, stamp duty on insurance remains a retrograde measure that numerous inquiries and reviews have found leads to household underinsurance or non-insurance.  

The ICA urges all state and territory governments to advance tax reform and remove stamp duty on insurance products to increase insurance affordability for all Australians.