Sally Sara:
Well, an increasing number of Australian households in flood‑prone areas are uninsured and it’s prompted the federal government to take a look overseas for some potential solutions. In Britain, a flood levy is estimated to have helped half a million households. Assistant Treasurer and Financial Services Minister Daniel Mulino has just returned from London where he’s had a look at the scheme and joins me now. Minister, welcome back to breakfast.
Daniel Mulino:
Oh, thanks for having me on, Sally.
Sara:
You headed a federal inquiry into major floods in 2022. That inquiry made 86 recommendations last year, including a nationwide buyback and a resilience program for very high‑risk flood areas. What progress has the government made on responding to those recommendations?
Mulino:
So, some of the recommendations related to strengthening the code of practice that governs the way the industry operates and the way that it interacts with consumers. That code of practice is currently being reworked and a number of those recommendations are under active consideration. Industry is working closely with government and other stakeholders and consumer groups. That would include things like better protections and clarity around how to identify vulnerable consumers, it would deal with things like protections around temporary accommodation and also things like cash settlements.
So, there’s a whole raft of recommendations there that are currently being worked on. Another piece of work that’s currently underway between government and regulators and industry is more data provision by the industry and more clarity around their performance and reporting of that. But then, as you identify, there’s also a growing proportion of people in Australia who are excluded from insurance markets. It’s estimated that around 230,000 properties and 60 to 80,000 small businesses are at a 2 per cent risk of flood a year or higher. And that means that insurance, including flood insurance, becomes extremely expensive.
The other problem, of course, is that insurers are getting more and more accurate data so they can identify which properties are at high risk more and more accurately. And they are increasingly saying to both households and small businesses, we don’t want to offer opt‑out insurance. So, in the past, the way that this was managed was that insurers would say, we’ll offer you cover for everything but flood. That is now less common in the market, so there are increasing numbers of households and small businesses who are finding it harder to get cover full stop.
Sara:
Minister, what’s the system that you’ve had a look at in the UK?
Mulino:
So, when we went on the delegation, we met with the heads of the 3 major reinsurers globally, Lloyds, Munich Re and Swiss Re. We also met with some of the biggest global insurance brokers, including Marsh McLennan and Aon and we also met with some heads of global insurers, such as Allianz, and what they were all saying is that there’s a wide range of approaches being adopted internationally. So, as you identify in the UK, there’s a model called Flood Re, which uses a levy across the whole population to both subsidise insurance for some of the highest‑risk households, but also to subsidise mitigation works at both the community and household level.
Sara:
How much is it per person or per taxpayer?
Mulino:
It’s in the range of 10 to 20 pounds, but it’s a bit tricky to pin down because it’s evolving over time and the way in which it’s levied on each individual does vary by area, but it’s, you know, in the big scheme of things, it’s not huge and is an important mechanism to provide access to the insurance market for people who are otherwise not able to get insurance.
One difference, I would say, in Australia is that the government has already independently funded a major mitigation scheme operated through programs managed by my colleague, Minister Kristy McBain. So, we have $200 million a year guaranteed for mitigation. So, the government’s already acting on that front. The flood rescheme involves that levy across the whole pool.
There are other schemes being adopted in Italy and France, Germany and Switzerland, which we’re looking closely at, which are slightly different in the way they operate. And then there are schemes in the US which operate, again, differently across jurisdictions. In California, there are a range of price caps which have, in some instances, had the effect of limiting insurance availability. And then there’s a flood pool operated by the public sector in Florida, which arguably has had the effect of encouraging more development in some areas and has actually come under huge fiscal strain.
So, what we’re doing at the minute is looking at this wide range of approaches adopted. It is true to say, I think, that there is a growing problem of access to insurance at the riskier end of the market, and it’s very much worth us looking at these different approaches being implemented overseas.
Sara:
So, are there aspects of these overseas programs which are appealing to you at this stage, which might be considered here?
Mulino:
Well, we’ve only just gotten back a couple of days ago and I think now’s the time for us to seek more information about these schemes to see how they’re actually impacting markets. So, I wouldn’t want to go into too much detail, but I was actually impressed with how many different approaches are being adopted. I think it’s actually going to give us a significant evidence‑base to work on. I think that the evidence seems to be from some of the European schemes that they have been successful in increasing access to insurance at the riskier end of the market.
What I would say is that Australia has become a world leader when it comes to the mitigation end of this policy suite. Our Disaster Ready Fund was actually of great interest to all of the counterparts that I spoke with in Europe and the global reinsurers. Not only are we spending $200 million a year on mitigation but that is informed by something called the Hazard Insurance Partnership where industry and government are sharing data with each other.
So, when it comes to mitigation, which is in the long term what we want to see because we want to reduce the risk that communities face, Australia is already world‑leading, I would argue but I think we do need to look at schemes to help communities where access to insurance is problematic.
Sara:
Daniel Mulino, thank you very much for your time this morning.
Mulino:
Thanks very much, Sally.