Who foots the bill for northern Australia’s insurance problem?

Unfortunately for the people of northern Queensland, just because you repeatedly vote for politicians who deny the existence of climate change, it doesn’t mean climate change doesn’t exist. Not merely does it exist, it has steadily been pushing up insurance premiums for households in northern Australia for more than a decade.

Last year, the Australian Competition and Consumer Commission (ACCC) found that “between 2007–08 and 2016–17, average home and contents premiums … have increased by between 23% and 67% in northern Australia, and by 16% in the rest of Australia”, and that “in 2016-17, the average annual home and contents premium in northern Australia was $2000, which is about double the average for the rest of Australia”.

The worst affected places are “concentrated along the coast of north Queensland, far-north Queensland, the Pilbara, Darwin and central Australia”.

The Australian Prudential Regulation Authority (APRA) summed up the problem in a recent submission: “Costs are driven by urbanisation and population growth in risk-prone areas along with the longer-term impact of climate change, which is expected to increase the frequency and/or severity of weather-related events”.

Since then, the ACCC has examined and sought comment on what to do about the issue, recommending a range of fairly minor changes to improve transparency for consumers, address underinsurance and encourage shopping around. But it is now also considering “policy measures that could have the potential to achieve real and meaningful change for northern Australian communities”.

Far-right MP for Dawson — and arch-climate denialist — George Christensen has one in mind. He told the ACCC that insurance companies should be forced by the government to “have a set of minimum percentage of clientele in areas which are considered significantly disaster-prone”. Barring that unconstitutional suggestion, Christensen wants “a government-backed reinsurance scheme” or “more direct financial assistance to enable household mitigation works”. All to address a problem that, according to Christensen, couldn’t actually exist.

APRA and insurance companies don’t support the idea of government intervention to lower the cost of insurance premiums. They prefer funding to harden infrastructure, reducing the costs of recovery after the next disaster. APRA says it is “strongly of the view that public mitigation offers the greatest potential to address the root cause of the risk and improve affordability”. Examples include pre-emptive infrastructure work, risk mapping and better building codes.

In such responses, the 2014 report of the Productivity Commission (PC) on natural disaster funding arrangements is frequently cited. The PC found “governments over-invest in post-disaster reconstruction and underinvest in mitigation that would limit the impact of natural disasters in the first place. As such, natural disaster costs have become a growing, unfunded liability for governments … Australian Government post-disaster support to state and territory governments [states] should be reduced, and support for mitigation increased”.

Note the trade-off between mitigation and recovery funding urged by the PC: that recommendation was not about cash, but about incentives. If states and territories are given recovery funding after every disaster, they have no incentive to ensure infrastructure doesn’t get damaged in the first place. The PC wanted states and territories to be funded to make infrastructure resilient rather than fix it afterwards — the same logic the PC has long wanted to apply to drought funding: fund resilience, not handouts during drought. 

That doesn’t suit politicians, who love nothing more than a good disaster to enable them to look authoritative and dole out recovery cash. Rather than the PC’s recommendation for a re-weighting of funding, what’s more likely to happen is an increase in mitigation funding in the form of politically chosen infrastructure projects, while preening pollies continue to hand out more and more recovery funding to the “brave residents of X” after an increasing number of disasters.

And that raises the issue of incentives when it comes to northern Australia and north Queensland in particular. Whether it’s Christensen’s compulsion for insurance companies to offer his voters insurance (i.e. forcing policyholders in other states to subsidise his voters) or greater mitigation funding for at-risk communities in the north, it means the rest of Australia will be required to foot the bill for communities that remain in high-risk areas — and which repeatedly vote for politicians who don’t even accept that climate change is real or that climate action is necessary. A cynic might see it as a taxpayer subsidy for climate denialism.

Regardless, as the PC and APRA make clear, unless we get smarter about how we fund disaster response, such communities will become more and more uninsurable.