ACCC inquiry has released the first interim report: Northern Australian insurance needs immediate action
Extreme weather in northern Australia, and the cost of servicing this area, are partly to blame for the high premiums that many consumers are facing. But other factors have contributed, including moves by insurers to assess risk and set premiums at an individual address level, rather than pool risks across regions.
The ACCC’s analysis revealed an unusual competitive dynamic. The inquiry found insurers are not actively trying to win market share in some high risk areas, but are instead seeking to deter customers and limit their exposure by raising premiums, leading to soft competition. Markets at the regional level are also highly concentrated.
The ACCC did not find evidence that insurers were making high or excessive profits in northern Australia, or that they were using profits in northern Australia to subsidise premiums in other parts of the country. Rather, high claims and costs have resulted in the majority of insurers operating at a loss in northern Australia during the past decade, while those that were profitable had lower returns than in the rest of the country.
I haven’t yet looked through the full report but it was pleasing to see issues related to stamp duty addressed as the first priority.
The interim report found that stamp duty paid on home, contents and strata insurance in northern Australia rose from $22 million in 2007-08 to $79 million in 2017-19, and GST revenue rose from $25 million to $78 million over the same period.
The ACCC recommends stamp duties be removed from home, contents and strata insurance. If agreement to do this cannot be reached, then it recommends state and territory governments base stamp duty on the sum insured, rather than the premium, and that some of the revenue collected is allocated to improving insurance affordability and funding mitigation work.
This is something I have been on about for a while (including a dismissive response from then Treasurer Nichols) with stamp duty representing a regional fiscal transfer. The recommendation to at least shift the duty basis to sum insured rather than premium should be easily implemented by the State. A modest but simple proposal. The ignorance and failure on this by the local representatives of all persuasions over a period of years does not reflect well on them.
There are 13 draft recommendations for feedback. Responses should be of interest with an election not far away and will add the report to my Christmas reading list and try to keep developments and links on the saga updated at the insurance page.