Australian governments should “reinvent” the insurance sector and even underwrite some business risks, a leading advocacy group says, as the prohibitive cost of coverage leaves many companies exposed to financial ruin.
As flooding ravages communities in south-east Queensland and New South Wales’ Northern Rivers region, Business NSW on Thursday called for a radical rethink of how insurance companies mete out coverage.
Some insurance premiums have risen to the point of unaffordability, the organisation said, meaning many business operators are forced to go without — risking catastrophic financial damage in the case of natural disaster.
The group’s members identified rising premiums as their “biggest negative business cost driver”.
The increasing frequency and severity of extreme weather events means insurers could also shy away from disaster-prone regions, Business NSW added, potentially rendering businesses effectively uninsurable in the future.
Those pressures could ultimately constrain private sector growth, Business NSW chief executive Daniel Hunter said.
“We are at a moment when government, partnered with industry, need to consider alternative models so that we remain globally competitive,” Hunter said.
Chief among Business NSW’s recommendations is the call for governments and industry to collaborate on a “intervention/reinvention” of the insurance sector.
Such a move could see taxpayers foot the bill for some business insurance premiums.
Business NSW’s proposed shake-up would “likely require new legislation”, and require governments to underwrite risks “in some instances… to ensure businesses can continue to operate”.
Push to expand $10 billion reinsurance fund
Some changes are already on the way.
The federal government last year said it will guarantee a $10 billion reinsurance pool for northern Australia, a move designed to reduce insurance premiums for those living and working in disaster-prone regions.
That pool would ultimately put a lid on the losses insurers face when natural disaster hits. By limiting those risks, insurers would be encouraged to offer lower premiums to homeowners and businesses.
Prime Minister Scott Morrison said the pool, which comes into effect July 1 this year, could lower insurance premiums for SMEs by 34%.
Australia’s insurance industry welcomed the move, and lawmakers from both sides of the aisle have recently called for the reinsurance pool to expand beyond northern Australia.
However, Business NSW today argued “the problem is much bigger than just insurance costs”, and extends to the nature of disaster protection itself.
Stakeholders should consider the role of discretionary mutual funds — organisations where members chip in and collectively decide whether to compensate a claimant, instead of relying on one firm to decide whether a claim is valid.
As Business NSW challenges the existing insurance model, flood-related claims continue to rise.
The Insurance Council of Australia (ICA) yesterday said insurers have fielded 107,844 claims linked to the flooding in QLD and NSW.
“We can see that this event is shaping up to be one of Australia’s most expensive floods,” ICA CEO Andrew Hall said.