Ellen Fanning:
Please thank the minister again for that speech. You have QR codes on your table if you want to fire follow‑up questions to my iPad, but be quick, because I’ve got a bunch. Go on, push them through.
Okay, so you’re not – the industry is in a very lucky position that you probably, had you lost that speech, been able to give it without any notes – you know what you’re talking about, you’ve been around this industry for a very long time. And I think in Australia we’ve been gathering the data and understanding the problem, to some extent admiring the problem, of flood and natural disasters for some time, but particularly those statistics you were rattling off about the 242,000 homes facing severe to extreme risk.
So, what I’m trying to get an understanding from you, if not definitive answers are, around shared risk pools is really what do you think at this stage is your instinct for what we’ll end up with, and when you do think we’ll end up with it? That’s all I’m trying to get out, if you think that’s a good idea. If not we can debate it. So let’s just start with the idea of who does what. In terms of government’s role, when you were overseas on this 11‑city, 6‑country tour talking deeply about these issues, what did you learn about who does what and what makes these schemes work well?
Daniel Mulino:
So, in terms of next steps, what I would say is – before getting to the core of your question, I would say that there’s, I think, now a cross‑partisan agreement that we really need to maintain the effort on mitigation. I just want to start with that because I think some people take that for granted when, in fact, if we go back a decade, federal and state governments were doing an order of magnitude less than we are now.
Now, the thing is we moved from what we are doing a decade ago, and the PC at that time made a report saying that we really need to shift our effort. And now we’ve got $200 million a year, but it’s not just the dollars. We really need to keep you are effort up with the HIP (Hazards Insurance Partnership) and making sure we understand how to spend that well.
I know that there’s a debate around should it be more, but I just feel like we need to keep rolling that program out at the moment and making sure that we’re putting good risk‑reduction programs in place. And then I think we need to make sure that the industry is then reflecting that in reduced premiums for communities that are benefitting from that. So that’s a kind of no regrets starting point.
I think the other thing I would say in terms of what we need to do – and this, again, is a global phenomenon – is that no matter where we end up on the risk sharing or the risk mitigation side, we need to keep work together as industry, as government, as regulators, as consumer groups on the whole consumer experience. And I think there’s been progress in a bunch of areas there, but I think that’s a work in progress and I think that just reflects in part the complexity of dealing with some of the very difficult issues insurers deal with. In part it’s the complexity of dealing with very heterogenous consumers. It deals with the challenge of dealing with a very broad geographic area. So, I just want to flag that there’s all of that work as well.
In terms of the specific issue, you raised, Ellen, I think way too early to get into any kind of model. But what I would say is that what was reinforced to me overseas is that if you look around the world, if you look at California, Florida, New York and a whole bunch of European countries, the range of approaches is very wide.
Now, there are some approaches that I could say from the outset that I’d be instinctively reluctant to embrace. So, for example, both as an economist but just as a public policy person, I tend to not be too keen on trying to get better outcomes through things like price caps because generally that has a big impact on the supply side. And I think we’ve seen in a whole bunch of jurisdictions where that hasn’t worked as it might have been intended to.
Fanning:
So, you look at California, and you look at things like that and say one of the first principles is governments – you can’t just mask rising risk?
Mulino:
Exactly. And I even remember going back to my time in Bill Shorten’s office back 14 years ago. And I think one phrase he used to use was you can’t legislate away risk. So I think there’s that side. But then what – one thing – and this is an obviously thing to say – but one thing that I would say looking at this issue in all those jurisdictions is that it’s a wicked problem everywhere. So there’s that observation.
And finally I would just make the observation – and, again, I think it’s too early to get into specific models – but this is not the only market where we face these kinds of issues. We deal with these kinds of issues in a range of other insurance contexts – life insurance, health insurance – where there are particular consumers with particular identifiable high risks. And there’s a range of approaches that can be looked at. But, yeah, I think now is the time, I think, to start looking at that full menu of options and looking at the pros and cons.
Fanning:
And so what were your observations when you locked at the UK’s Flood Re Scheme. Some of us heard from Martin Lennon who was one of the leaders of that scheme at the conference yesterday. What lessons do you think there are for Australia in that? Maybe just describe it and then say what you liked or disliked or what are the lessons for Australia?
Mulino:
Yes, I think I wouldn’t want to describe it in too much detail because you’ve had the expert here. But I think one thing about the Flood Re Scheme is that there is an element of cross subsidisation. So that is a feature of some schemes. Another feature of the Flood Re Scheme is the some of the funds that are raised from the levy are dedicated to mitigation, as I understand it.
So, one contrast I would make between that and what’s happening here is that there is a discrete mitigation program which is significant and which is being informed by the HIP. So I think that’s one point of difference between – and that’s where a lot of people making observations overseas remarked that our mitigation program is world leading in many respects.
But I think that there are aspects of the Flood Re Program that have, as I understand it, led to greater access for some medium and high‑risk households. I mean, the other thing I’d say about the Flood Re Program is that even though it’s been operating for a while, some of the experts there said it’s going to take a bit more time to fully evaluate some aspects of that scheme. So, some of the people who talked about Flood Re are a little bit cautious. But certainly, it’s a model which has some interesting characteristics.
Fanning:
Now, you’re saying that the Disaster Ready Fund is a critical baseline before we get into this. The insurance community is saying the big problem requires a big solution and that maybe one big piece of architecture the needs to be put in place is this $30 billion defence fund spread across the eastern states so that the feds, Queensland, New South Wales and Victoria taking some responsibility there. And really that fund being the basis of the government side of this and not only mitigation – you know, levies and dams in high‑density areas, managed relocations, raising houses, that sort of stuff – but, again, wrapping in your building standards that you’re talking about as well as maybe some funds to reduce premiums. What do you think of that sort of architecture and investment as the basis for the government side of this?
Mulino:
I mean, there’s a number of elements to that. So, I suppose, one element that has been covered a little bit in the media is the magnitude of what’s being talked about. I would just start with the observation that it’s not uncommon where government is involved in various programs for various external stakeholders to say they’d like that to be that amount times whatever. So I do get that there’s often a question mark over magnitude. But, again, I go back to the fact that a billion over 5 years is a really significant uplift from where it had been even 5 years ago.
Fanning:
But I’m just trying to get a sense of how ambitious your thinking is. Because clearly, you’ve got the depth of understanding in your pre‑parliamentary life and your parliamentary life to sort of shepherd this through government. What’s the scale of your ambition here?
Mulino:
Yes, so, look, I think that for me the ambition is significant and, look, the DRF is with a different minister. But what’s good, I think, is that Minister McBain and I are working together on this, and I think that does reflect the fact that we need a broader, holistic approach to this issue. So, look on the mitigation – my understanding of the 30 billion is that part of it is mitigation, an uplift in mitigation.
But I would simply say there that is something, I think, government can look at from time to time. But I also think it’s important that we make sure that we get a few years of delivering really high‑value, high‑impact mitigation projects. And we also need to acknowledge that it’s not just a question of dollars with construction projects, that there are all sorts of workforce and other constraints. So that’s a complicated one. But, yes, I think on the mitigation piece, there is a really ambitious program there that we need to work on.
Another element of the ICA’s program is the house buybacks, as I understand it, and the resilience piece. Now, the report that I chaired – which I’m yet to fully respond to but will I will in time – did make reference to that resilience piece and said that the resilience responses after the 2022 floods in the Northern Rivers and South East Queensland, which totalled about $1.5 billion split between the New South Wales and Queensland government and the feds, so that included, for example, some house buybacks and some individual house raises.
The report acknowledged that there had been a lot of positive aspects to that. There’d been a lot of learnings though, it was the first time it had been done at that scale. I think where we’re at the moment is that those kinds of resilience responses tend to be done after major events. That’s just where we’re at the moment. But my report flagged that they were important. They need to be considered as part of the mix of responses.
I would just say that – again, everybody in this room would know this – anything involving house buybacks is very expensive. I think with the very highest risk houses, after a major event it should be part of what’s on the table. But by its nature, there’s a limit to how many households can benefit from those kinds of programs.
The other set of issues you flagged was around land use. And for me there are some really longstanding but important issues here because, I think, if we’re going to move forward in dealing with the affordability issue, I think we’re going to need to deal with the issue of stopping new developments in high‑risk areas.
Fanning:
Our New Zealand counterparts said just yesterday, we need to stop doing dumb things. And he put that in some press releases he actually heard the minister – or was it the Prime Minister – say it, yes.
Mulino:
I mean, I agree with the. But, of course, that’s not always easy in practice. And look, I do acknowledge – like, if we were to say ‘stop doing dumb things’, some councils would come in here and say, ‘Well, look, I’m being told by my state government and by the broader community and federal government to put 10,000 people into my council area every year. Where do you suggest?’ Now, look, my response would be we just have to find a way to do it without going into 1‑in‑100‑year flood risk areas.
And, look, I would suggest we probably need to even change our frame of reference. I think we need to do it without going into 1‑in‑100‑year flood risk in 2100, frankly. I don’t think it’s really responsible to be building in very high‑risk areas that we know are going to emerge. But I just say it’s not as straightforward an issue, there’s a reason in many areas why councils are doing this.
I would simply say I think that the rate at which this is happening has slowed. That’s my understanding.
Fanning:
The dumb things?
Mulino:
Yes, the dumb things have slowed. But I do think if we’re going to look at this, one of the areas we need to look at is ways in which all the levels of government can work together to do this better. One thing I flagged publicly before is that it’s worth having a discussion with the banks about this because one of the levers I think that we need to think about is credit going to new developments.
And I think for me that’s an important one, because what we don’t want is money being lent to households where there’s a general understanding that that household may be able to secure insurance for one year but then probably won’t be able to secure it going forward. So, I think we need to, if anything, bring more players into this discussion, as much as that sometimes complicates things. I think in this instance it is important.
Fanning:
Okay. So, I’m listening carefully to what you’re saying. You’re saying if we’re going to do this, if we’re going to do this shared risk scheme. Do you think that, in a sense, government – you said that a precondition has to be government’s role in driving down risk, government can’t be masking rising risk. And you said that you’re happy with the level of funding in the Disaster Ready Fund because you’re looking for proof of concept with that. So, do you think as it stands at the moment, you’re comfortable that government is doing enough to proceed with an investigation for the shared risk pool scheme, or is that some years down the track?
Mulino:
Look, I would say that in relation to some of the affordability and access issues, I’ve flagged that it’s important to look at this holistically. And so, I don’t want to get too far ahead of any discussion that we’re having, but so the starting point for me is that we are already on a path of mitigation. That’s an important path. There’s a really important set of work around the code and around regulation of insurers’ interactions with consumers. And I think that coming back from that delegation I would simply make the observation that there is a wide range of approaches overseas, and I’m really keen to reflect on those approaches and what works best and what doesn’t.
Fanning:
And if you had to sort of do some blue-sky-thinking, is that what we’ll end up with in Australia – a shared risk pool similar to these ones they’ve got overseas, or an Australian version of it? Is that where we’re heading for those 242,000 homes, 77 per cent with no flood cover? You know, you had the stats, 70 per cent of the regions with low and medium income, 35 per cent living below the poverty line. Is that where we’re going to end up, do you think?
Mulino:
I think it’s too early to get into those kinds of specifics. But, as I said, I think the fact that there’s a range of approaches in other countries in dealing with similar kinds of issues to me is very instructive. And I think the benefit of a whole bunch of other countries trying a wide range of interventions, the benefit for us is that we can then look at what the pros and cons of different interventions were.
And, as I said, there are some things that for me I can kind of instinctively say I wouldn’t be drawn to or don’t seem to be working in as straightforward a way as intended. There are many other approaches where there’s a lot of devil in the detail. And so that’s where I think we’ve just got to cautiously have a look at what’s going on.
Fanning:
And before I go to these questions, you have spoken about the code. You have spoken about a range of things that you’re looking for industry to do. And I know you have those conversations all the time with industry. But what should industry be doing in relation to exploration of shared risk schemes? Do you want to see them putting some work in and delivering up ideas?
Mulino:
Well, look, I can say that industry does offer me their views on these issues. [laughter] And I welcome that because – not just industry, but consumer groups, experts. I mean, this is the thing – the people representing a wide range of perspectives in this room. And it’s that full range of perspectives that is important in coming up with the most sensible way forward.
The importance of the industry perspective in part, but a really important one is that they have an understanding of what works in practice. And I don’t always just take industry view on face value. It is an important perspective because I’ve seen in my time in public life that with complex matters like this, if you don’t have discussions with people who are actually there implementing it, don’t try and understand some of the details of what might happen in practice, then you are at risk of possibly unintended consequences.
Fanning:
There’s a whole heap of questions here about the cyclone pool. Is it too early to consider expanding the cyclone reinsurance pool? Within that answer – let me know – you’ve announced a review of the cyclone pool and terrorism pools. What are your hopes for those reviews, and do you think they’ll help to make insurance more affordable. So, expansion and reflecting on the reviews?
Mulino:
Yes, I mean, I don’t want to comment too much on that review specifically in that we’ve just commenced it and are seeking feedback. But look, there are a number of issues that have been flagged in relation to the ARPC. One is a question over what has its impact been for different cohorts. As I flagged, the ACCC has found that it has had an impact on pushing down premiums, in particular, for the highest risk households and to a degree medium‑risk households. Of course, there’s that issue around how many hours after the event it should be providing cover for floods. That, I’m sure, will be an issue on which I’ll receive a lot of feedback on.
So, the ARPC, I think, review will be a really important piece of the broader puzzle here. And I suspect one of the issues might be should the ARPC be broadened to other risks. But from my respective I’ve really just started this review, so I really don’t want to kind of prejudge anything on that front.
Fanning:
Okay. Let me come to some other questions: there’s a question here, what’s the government doing about supply‑side challenges such as labour and skills shortages which could hamper resilience efforts?
Mulino:
It’s a great question. So, on the supply side – and I’m thinking here the reference is to things like construction workers and trades people – so on that front there’s been a lot of effort in the first term on boosting TAFE capability, on boosting the numbers of people going into apprenticeships. And, in fact, out of the last election there was a significant boost in the in prac payments, payments to apprentices in different sectors. Greater numbers of people going through TAFE is absolutely critical here.
Of course, the other part of this is skilled migration, which has been a difficult topic, a complex topic nationally. But there’s no doubt the priority is to train more people, train more young people and mid‑career people in Australia for some of these sectors like construction and the trades. But there are sometimes short‑term gaps which skilled migration has a role in assisting in. And so, for me, it’s both of those tracks.
If you look at our economy as a whole there are a number of really important goals that we’re trying to achieve. One is the 1.2 million homes. Another is the clean energy transition. Another is that we have really significant social and economic infrastructure in a range of communities, including our big cities, like the big transport projects.
You know, in my own electorate a multi‑million-dollar hospital. So, there are many demands on construction and trades skills in particular. And I’m fully cognisant that this is an issue that often arises after a natural disaster, for example. But then into that mix you then have an urgent need to help large numbers of people. So, the skills side of things has been a real priority of the government already in the first term but continues to be.
Fanning:
Okay. Everybody wants me to ask you this question – it keeps getting uploaded.
Mulino:
It sounds ominous.
Fanning:
In 50 words or less – ha! – what is the government’s role and what is the industry role and what is the property owner’s role on taking on this challenge?
Mulino:
Yeah.
Fanning:
Take more than 50 words.
Mulino:
Look, I’ll just tell you a funny anecdote, and it’s not to avoid this but just to say I was at a COSBOA function recently where there were 4 politicians in the room. And everybody had had a long day and no‑one wanted to hear politicians speak. But they decided they had to give each person a brief speaking role. So, the host said, ‘I’m going to give a prize to the person that speaks the shortest.’
So, Minister Watt got up and gave an 80‑second speech, and then it was Angus Taylor after that, who spoke for 65 seconds, and then I got up after that as Chair of House Economics and spoke for 53 seconds. And then Bruce Bilson was the last one, and everybody thought he was going to go for 15 minutes, but he spoke for 45 seconds. And we all managed to say 2 useful things. So, I think when there is a constraint that you can actually sometimes say something useful.
But look, I won’t be able to comply with this in 50 seconds – 50 words. So, it was government, industry and?
Fanning:
Consumers. And particularly reflect on that information asymmetry role with consumers, because just working in local radio I see that a lot. You know, we were talking earlier about the mini right in the Logan City Council when the flood maps came out because people have a view, ‘I know more about my property than the insurance sector or the local government or the flood map.’ And that drives an issue with trust in this sector and trust in authority, doesn’t it? That this is some sort of conspiracy, this isn’t happening and this is an assault on my property rights, sort of thing?
Mulino:
Well, to put it in as few words as possible, one might say the government’s role, I think, as a regulator, is to ensure core, minimum, appropriate standards of behaviour by industry to regulate for competition and innovation and to deal with market failures. I’m using that term broadly. So, as I said, some of these access issues, whether they’re a market failure to me is a bit semantic.
When it comes to industry, I think ultimately industry’s job is to serve consumers. And to some degree competitive tension – serve consumers through their service standards and their interactions with consumers and with innovation. To some degree competitive tension helps with that. But I think at the core of it is also the insurers are the organisations’ feeling of obligation to the consumer, their relationship with the consumer. That, to me, is also core.
And when it comes to the consumer, I think there’s consumer groups whose role is obviously one of advocacy and representation. And I think for the consumer themselves it’s as much as possible to be as informed as possible but acknowledging that that’s often difficult in an environment with a very complex product.
Fanning:
Daniel Mulino, thank you so much for taking the time to come and talk to us today.
Mulino:
Thank you.