As Cyclone Ita lurked menacingly off the coast of far north Queensland in April last year, then-Queensland Premier Campbell Newman urged any residents of Cooktown whose homes were built before the 1980s to evacuate, warning that the coming winds could be too much for those dwellings.

The early 1980s are significant; that’s when Australia, shaken by the devastation of Cyclone Tracy a few years earlier, finally instituted stricter building standards to prepare buildings for cyclone-level winds.

That’s why much of the insurance industry  has latched onto 1981 as a key year in efforts to lower insurance premiums in north Australia.

Earlier this year, the Insurance Council of Australia (ICA) – with the support of most the country’s largest insurers – launched a plan for improving the resilience of most vulnerable buildings in North Queensland.

New game plan

Proposed as part of the ICA’s response to the Northern Australia Insurance Premium Taskforce, the mitigation plan has been dubbed A Third Way and calls for the Federal Government to pay up to 75% of the cost of retrofitting the roofs of low-income residents using an over-batten system.

ICA CEO Rob Whelan says polling shows that 80% of North Queensland residents would undertake storm-proofing measures if it lowered premiums.

“Neither the mutual nor reinsurance options being actively examined by the Taskforce will reduce or prevent the property damage that cyclones cause – and that’s the primary contributor to insurance premiums in North Queensland,” he says.

“Fixing the roofs on pre-1981 homes will provide a lasting benefit to householders and communities, and prevent much of the emotional and financial heartache that is unfortunately felt by too many Australians in the north each year.”

Whelan says the industry proposal meets the recommendations of the Productivity Commission’s Report into disaster relief funding, which concluded taxpayers are better off funding resilience and mitigation than paying millions in repair after catastrophes.

Infographic: insuring the north

Click to enlarge.

Cautionary Tales

The Northern Australia Insurance Premium Taskforce was set up earlier this year in response to growing political pressure about the expense of premiums in the north, amid allegations of widespread unaffordability.

In its interim report, the Taskforce called for comment on proposals to run a state-backed cyclone mutual insurer, as well as a reinsurance pool. Suncorp’s submission was blunt, warning that market intervention through a pool or mutual would not work.

“It will be expensive, and it will leave communities vulnerable to increasing risk,” it told the taskforce. “International experience shows that insurance pools create a moral hazard that encourages further risky development, and expose governments and taxpayers to significant liabilities.

“The US flood pool has grown from covering 1.4 million homes in 1978 to 5.5 million in 2013 and currently holds USD$23 billion of debt. Closer to home, the Christchurch Earthquake exposed the New Zealand Government to NZD$16 billion of losses via the Earthquake Commission.”