Residents in cyclone-prone areas of north Queensland are being failed by a “broken” insurance market, marked by a lack of competition and skyrocketing premiums, advocates say.
A Senate inquiry is investigating Australia’s general insurance industry, attempting to understand whether a government-run comparison service should be created for consumers, similar to that for health insurance.
The inquiry heard evidence on Wednesday about the strange factors that can influence insurance premiums.
Consumers who buy white cars or purchase their insurance at night, for example, were more likely to have lower premiums, the inquiry was told. Marital status may also be influencing premiums.
On Thursday the inquiry heard from Margaret Shaw, a consumer advocate and former member of the northern Australia insurance premiums taskforce advisory panel.
Shaw, who has extensive experience in the insurance industry, was retired and living in a 25-apartment complex at Airlie Beach in 2011 when “overnight, and without warning … our [strata] insurance went from $25,000 to $81,000”.
She said strata insurance premiums across north Queensland had risen by between 200% and 600%. She also said many insurers no longer offered cover in cyclone-prone regions. That left the market captive.
Consumers were given no explanation for the skyrocketing premiums, were not told what part of the premium was due to cyclone risk and were given no credit for improving their properties’ resilience against severe weather.
Senator Nick Xenophon asked Shaw whether the market in the north Queensland was broken. She replied: “Yes, I’ve been saying that since 2011.
“Sorry, I don’t mean to be sarcastic, it’s just that people here, from Rockhampton all the way up to Cooktown, have really been suffering.”
A 2014 report into strata insurance, commissioned by the federal government, found huge differences in premiums between north Queensland and the rest of Australia. Premium rates in north Queensland were 20% of those in other east coast centres in 2012-13, the report found. This was partly attributed to the lack of competition.
The Insurance Council of Australia, in its submission to the Senate inquiry, said the rises in insurance premiums in north Queensland had been caused by historical under-pricing, increases in the cost of reinsurance and losses caused by natural disasters.
The Victorian Council of Social Services also gave evidence on Thursday. Its chief executive, Emma King, said it was astonishing that insurance contracts were the only type of consumer contract not protected by consumer law.
“This means that fundamentally many insurance contracts sold are simply not worth the paper they’re written on,” King said.
She said the 4 million Australians on low incomes faced significant barriers to accessing insurance. In Victoria, she said, 26% of people were not insured and 28% were under-insured.
She said the market had failed low-income and vulnerable people.
“As a whole, it’s the view of VCoss is that what we’re looking at is a market failure,” she said. “A failure to communicate clearly, a failure to offer suitable products, a failure to implement sufficient hardship policies, a failure to be socially responsible, and a failure to provide what is an essential service to all Australians.”
The inquiry continues on Thursday.
