National pool to subsidise high insurance premiums the
best solution, says Actuaries Institute
• High insurance premiums for flood-prone properties should be subsidised through a
temporary national funding pool
• Subsidies of premiums should be conditional on insurance policy holders and local
councils acting to reduce risk exposure
18 January 2012 – The financial impact on the insurance industry from floods and other
catastrophes, together with recent reports of significant premium increases, has prompted
the Actuaries Institute (the Institute) to reiterate today the need for a temporary national
pool to subsidise high insurance premiums.
“The Institute recommends the creation of a national pool of funds to subsidise the high
insurance premiums of people living in disaster-prone areas,” said Institute CEO Melinda
Howes. “However, any assistance provided shouldn’t encourage risk-taking behaviour
such as building in flood-prone areas.”
“Therefore it’s vital that any subsidies provided from the pool are conditional on policy
holders and local councils taking action to reduce the risk of damage from flooding, such
as carrying out the appropriate property renovations and building levees in high risk
For a number of reasons, the Institute does not favour direct government subsidies to
insurance policy holders.
“The alternative to a flood insurance pool that has been suggested – the government
providing direct premium subsidies – means the government gives money straight to
insurers, providing no incentive for households or local councils to manage their own risk
exposure,” said Ms Howes. “A national pool could also help those people who are not in
flood areas but have seen premium increases.”
As noted in the Institute’s submission to the National Disaster Insurance Review (NDIR) in
July last year, a national insurance pool could be funded in a number of ways, including taxpayer levies, a modest increase in premiums for all insureds, or direct government
The Institute also emphasised today that strategic activity to mitigate the community’s
exposure to flood risk should be undertaken by the government as a national priority.
“Next time there is a flood, uninsured losses and the call on government-funded
compensation will be even greater. So the underlying cause of potential flood and other
natural disaster losses – inappropriate development – needs to be addressed urgently
with the right mitigation measures, including revising building codes and planning rules,
building dams and levees, and relocating properties. This really is a case of a stitch in
time saving much more than nine,” said Ms Howes.
Anticipating the incidence of future weather events, the Institute noted that Queensland is
not the only state where large cities and towns have extensive flood exposure, and that
the cost of future flooding in other states could also be substantial.
“The largest flood on record in the Sydney basin was in 1867. If that event occurred
today, large parts of eastern and inner Sydney and the Nepean plains would be flooded,
causing untold devastation and potentially significant loss of life,” Ms Howes warned.
The Institute supports some of the measures announced by the government in its
response to the NDIR, including increasing the level of public awareness of risks through
a flood risk information portal and moves towards a uniform flood definition, but
emphasised these measures would do little to address the fundamental aspects of
Australia’s natural disaster insurance strategy – high premiums and the need to mitigate
the community’s flood risk exposure.
About the Actuaries Institute
As the sole professional body for actuaries in Australia, the Actuaries Institute represents the interests of its
members to government, the business community and the general public. Actuaries assess risks through
long-term analyses, modelling and scenario planning across a wide range of business problems. This
unrivalled expertise enables the profession to comment on a range of business-related issues including
enterprise risk management and prudential regulation, retirement income policy, finance and investment,
general insurance, life insurance, health financing, and climate change.
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