Breaking up insurers would not solve the problem of rising premiums caused by natural disasters, the industry’s peak body has warned, after Peter Dutton threatened to intervene in the market to stop Australians being “ripped off”.
The opposition leader used multiple interviews over the weekend to float the idea of extending the Coalition’s existing plan to carve up supermarket and hardware chains to the insurance industry if they win power at this year’s federal election.
Flooding across north Queensland and Western Australia this year has once again drawn attention to the difficulties home owners in flood zones have finding and affording insurance.
Andrew Hall, the chief executive of the Insurance Council of Australia, said more than 200,000 homes had a 2 to 5 per cent chance of flooding every year — an above-average number for a developed economy.
“To normalise flood insurance for people in high-risk flood zones, we’re going to need to find a way to spread that cost across the community more broadly. And it’s a difficult discussion to have,” he told RN Breakfast.
“I wish it was as simple as divestiture — there is not a silver bullet here for this problem.”
The Insurance Council of Australia’s Andrew Hall said divesture won’t solve the problem of high premiums. (ABC)
Mr Hall explained that there are 30 companies in Australia offering home and contents insurance but that the number of providers with enough capital to cover high-risk properties in some locations was a small fraction of that.
About 7,000 claims had been lodged following the recent floods in Queensland alone, according to Mr Hall, who said he had spoken to some insurers who “are rebuilding the same home for the third time in five years”.
“And keep in mind that governments are collecting nearly $7 billion in stamp duty and GST taxes off home insurance policies, which is more than insurance companies are making in profit,” Mr Hall said.
“Very little of that money is going back into resilience and risk reduction, and that’s ultimately going to be the key.”
Confusion over what was announced
Mr Dutton, in an interview with Sky News on Sunday, said Australians were paying too much for their insurance which had resulted in people opting out completely.
“There are, obviously, reinsurance issues, some of which are outside of our country’s control, but we need competition, we need depth in the insurance pool and we need to make sure that we’re not being ripped off by insurance companies,” he said.
“As we’ve done with the supermarkets, where we have threatened divestment if consumers are being ripped off, similarly, in the insurance market, we will intervene to make sure that consumers get a fair go.”
It’s unclear whether he discussed the announcement with his Coalition colleagues beforehand and whether he’s likely to go ahead with the threat.
Confusion increased on Monday morning when Nationals leader David Littleproud told RN Breakfast that divestiture for the insurance industry had not been approved by the joint party room “because it’s not a policy”.
“It would be unfair to say that was a policy announced by Peter Dutton,” he said.
“What he said was … don’t underestimate our determination to look to pull policy levers that we have in other industries.”
The opposition leader unveiled plans to introduce powers to force large supermarkets to sell stores in July last year, angering some of his party room colleagues who described the announcement as an “ambush”.
Under the plan, the ACCC would be able to take a supermarket or hardware store to court to force a sale.
Mr Littleproud said insurance premiums had increased by 19 per cent, alleging that there was “no real evidence to justify that”.
“When they [insurance companies] have a payout, they seem to work on the basis that they’re going to have a payout the very next year again and they put premiums up,” he said.
“And what we’re saying to them is ‘you’re on notice’, we’re going to get under the bonnet of this.”
The Coalition’s finance spokesperson Jane Hume would not be drawn on whether they were planning to push ahead with the idea, instead saying: “I think it’s really important that we have competition in the insurance sector, there’s no doubt about that, and that’s something we could look at.”
