The Federal Government’s own actuaries have cleared insurers of price-gouging in North Queensland, as the Treasury canvasses the industry on ways to lower premiums in the region.
Last week, the Australian Government Actuary released its report on strata insurance price rises in North Queensland, finding most of the enormous leaps in premium have been due to historical under-pricing and high levels of risk accumulation, although it also surmised that a small part of the higher prices was due to a lack of strong competition.
The report comes on the heels of a Treasury discussion paper suggesting that a price comparison website and the entry of foreign insurers to the marketplace could ease the burden on insureds in the region.
“Claims costs in North Queensland were both higher and more volatile than those in other east coast centres during the eight-year period of the investigation. These other centres are not exposed to cyclone risk in the same way as North Queensland,” the report states.
“Thus, the actual claims experience data provides evidence of a substantial difference in insurance risk between North Queensland and these other east coast centres.
“This difference explains most of the price variation but in my view there is a reasonable likelihood that a small part of the difference can be attributed to the presence of competitive pricing pressure in east coast centres and the absence of competitive pricing pressure in NQ.
“Price gouging can occur in a market where there are barriers to entry. . . In this regard, it is noteworthy that at least one significant player in the national strata title insurance market still does not currently participate in the NQ market. There is no reason to believe that this is as a result of any barrier to entry.”
NIBA has cautioned Treasury against some of the measures it has proposed in its recent submission about the discussion paper.
CEO Dallas Booth says NIBA has advised the Government a comparison web site is unlikely to be the effective.
“In fact, ASIC has expressed strong concern on a number of times that comparison and aggregator web sites that do exist in Australia have often been quite misleading, sometimes seriously so,” he says.
“Comparison web sites might be suitable if the risks are very similar, and the policies are the same. That is certainly not the case for property risks in North Queensland.
“NIBA’s response strongly argued that difficulties in the North Queensland property insurance market suggest the need for property owners to get professional and expert assistance and advice on their insurance needs. This can only come from an insurance broker.”
Booth says the Australian Government Actuary’s report underscores these points.
“That report confirmed the market is less competitive than other parts of Australia, has been seriously unprofitable for insurers in the past, and that there is no suggestion that current pricing is excessive,” he says.
“Nevertheless, the report concludes that the market is now more likely to attract new insurer participation than at any time in the past few years. This is evident from the announcement by Brooklyn Underwriting earlier in the week.”
Download the full Australian Government Actuary report here.
What is happening with strata cover throughout the nation? See our in-depth report here.