Fixing Insurance in Far North Queensland
Recently I received my home and contents renewal. My wife, son and I live in Brisbane in a typical 1920's timber Queenslander with an iron roof. Our building sum insured indexed up to $450,000 this year, whilst we kept our contents stable at $100,000. We carry a $1,000 building excess and a $300 contents excess. We're insured with Blue Zebra (Zurich) and our premium this year rose slightly from $1,372 to $1,413. This is a typical situation and outcome for those living south of Bundaberg. But, spare a thought for those living North of Bundaberg where premiums would be double if not triple by way of comparison. If you're lucky.
Now you don't have to be a rocket scientist to work out the reason why. The risk and cost of natural disasters coupled with a smaller insurance premium pool drives most of the problem. These factors aren't about to be corrected anytime soon. But there's a smaller factor called competition that contributes to the problem. This is a factor that could be controlled and deserves greater attention and thought.
Generally, I'm not one for government intervention in free market economies. Particularly in industries performing well in both customer service and purpose for which they serve. Even with recent negative perceptions from the financial royal commission the general insurance industry has fared much greater than any other financial service. This is mainly due to the incredible self-regulation, competition and standards the industry holds itself to. For example, in 2011 we saw the Brisbane Floods. Many customers didn't hold flood cover and the industry looked at this problem and swiftly created not only a universally accepted definition of "flood" but also set about making the cover standard for the most vulnerable consumers. That being domestic home/contents insurance purchasers. Nowadays finding a home/contents policy without flood is very difficult and insurers build this peril into their pricing the same as all other perils.
Insert Queensland MP George Christensen who is the member for Dawson, an electorate in Far North Queensland (FNQ) which includes Proserpine and Airlie Beach. I've disagreed with Mr Christensen's ideas and actions towards fixing the general insurance in FNQ for some time. But, recently he's idea of linking insurance licences to a requirement to offer policies Australia wide stuck a cord with me. On the surface I'm sure most in the industry will dismiss the idea as unhelpful and to be clear it needs much greater consultation, polishing and correction. Realistically though he could be onto something here.
Conversely, I've been a huge advocate for the work the Insurance Council of Australia (ICA) has done for a long period of time across most insurance related issues. However, I think they stand on the wrong side when it comes to insurance in FNQ.
Insurancenews.com.au reported the ICA saying "The ICA believes government intervention that would distort a properly functioning insurance market is not necessary," spokesman Campbell Fuller. And "Insurance is readily and competitively available in northern Australia and is risk-rated."
Anyone visiting the FNQ region to see what insurance premiums have done over the last 5 years would find it hard to argue that the market is "properly functioning" or "readily and competitively available". South of Bundaberg consumers can source quotes from probably 50 different home and contents insurance providers. Yet, North of Bundaberg this shrinks to maybe 7. And while we're on that topic a huge shout out and kudos needs to go to those insurers that have remained in the market. This doesn't get highlighted enough and really needs to be respected.
Lets call a spade a spade. This lack of competition and options for consumers adds pressure to those few remaining insurers left in the FNQ market to carry the burden. This is expressed by increased pricing. See insurance isn't like banking, car sales, retail, etc where a greater number of customers is a good thing. Most insurers don't want to insure everyone, they just want to insure what they perceive as good risks. And I can guarantee you the remaining insurers in FNQ would welcome reducing their exposure in this space through the introduction of new competitors. And even more of a guarantee is that increased competition would reduce cost to consumers. Lets revert back to the Brisbane Floods to understand why I think Mr Christensen's idea isn't so crazy. Prior to 2011 many insurers argued it was too hard, too complicated, too risky simply to provide flood cover on home/contents policies. Fast forward 8 years and it's now common practice for which insurers like to beat their chests about who has the best actuaries and who prices it best. So I think someone whether it be customers, government or the ICA need to pressure those insurers geographically discriminating risks to review their operations and force their hand to at least put a price on these risks. I'm not suggesting for a second actual pricing decisions are tampered with. This should always remain the prerogative of the insurers to set their rates. You can't tell me that insurers such as Blue Zebra, Hollard, Allianz, Budget Direct etc with their sophisticated pricing can't at least put a price on these risks.
My observation of the industry in this space for many years has seen players come and go in this geography. The coming is normally because of the desire to make money in new markets. And the going is generally spurred on by under-pricing the risk on entry or heavily discounting their actuary set rates. In saying that my experience with insurers also makes me believe that new or re-entrants to the FNQ market is possible and that those entrants would and should be able to price the risk presented with in a profitable way. Daily we're bombarded with stories telling us how much data insurers have and how sophisticated they can be with their pricing. Well the time is now to show us.
Premiums are now so high in FNQ that even an insurer throwing out what they might consider an unrealistic premium may be considered as quite competitive by consumers. For that reason, I don't think the idea of pegging home and contents insurance licensing requirements to at least offering to quote all of Australia is all that silly. Nor do I think it would have a detrimental impact on the industry or deteriorate the market any further.
Now government need to also play their part in the solution for FNQ insurance. They could assist by removing GST or at the very least stamp duty from property insurance. Given it's the insurance industry after every major disaster that rebuilds most of the damage. Major mitigation works that would protect whole towns such as flood levy banks etc need to be prioritised over road works in capital cities designed to save 5 mins in peak hour traffic. Also they could consider financial incentives for insurers in the FNQ market.
This is such a large beast of an issue. Everyone needs to come together and be part of the solution:
-Government need to act as mentioned above and offer more than just bashing insurers -Media needs to stop acting like the .01% of negative insurance claims examples are the standard
-Some insurers need to remember what their core roles are and at least offer cover all over Australia at rates they believe are appropriate. Who knows they might be competitive?
-And lastly consumers in high risk areas need to be realistic and understand insurance is going to be a bigger slice of the family budget
That's my 2 cents on the issue. I'm doubtful that the next 5 years will see any meaningful change. But, am extremely hopeful that if all stakeholders pull together a better outcome can be achieved.
Scott Norton Managing Director - Norton & Co Insurance Consultants