AMANDA CRANSTON:
The absolute utter devastation of losing everything and then having to sit down with your insurer to work out what’s next is what many people in the far north are going through right now. Tropical Cyclone Jasper and the once‑in‑a‑hundred‑year flood that came after has so far resulted in well over 6,000 insurance claims, and while many of those people severely impacted by these weather events are negotiating with their individual insurance providers right now, there are also others that just couldn’t afford to pay insurance and are not insured at all. And for them the future is even more devastating.
Will insurance premiums become even more expensive after the weather we’ve had in the last month? And what changes need to be made to the Northern Australia Cyclone Reinsurance Pool, which was supposed to make premiums more affordable?
Well, one person who may be able to answer some of those questions for us is the Assistant Treasurer and Financial Services Minister Stephen Jones, who joins me now in the studio. Good morning.
STEPHEN JONES:
How are you, Amanda? Great to be with you.
CRANSTON:
Now, you’re the minister responsible for insurance. You’re in Cairns this week, and you actually went out into the community yesterday to chat to people. Were you surprised by the level of devastation that you saw?
JONES:
I’ve been following it, the video clips, the news stories, Facebook and all the rest of it over the last three or four weeks. But nothing – one thing you don’t get on Facebook or on TV or on the radio is the smell. Or one thing you don’t get is the glint in somebody’s eye when something – when they’ve had a fantastic response from the community – or the tear in their eye when they’re telling a story about, you know, the devastation or some personal item that they’ve lost. So, I wanted to be there, and I wanted to hear directly from people about the impact. I’m from Wollongong on the south coast in New South Wales. It’s a long way from Cairns, but I wanted to ensure that as we’re making decisions and we're dealing with insurance and other related issues, about how we do the recovery, that we have in mind those people who are directly affected.
CRANSTON:
So, from those discussions you had with people yesterday, what were their biggest concerns? You know, what were the issues that they were expressing to you?
JONES:
Oh, look, certainty is a big one. You know, what are they able to – what are their expectations, what are they able to get from either their insurance company, local council, state government, federal government or community and other organisations or even their own employers. Those sorts of things. You know, if they’re a small business, there’s uncertainty about how much forbearance their creditors or their suppliers are going to continue to be able to give them as they’re working through these issues.
Look, if I could say the number one issue in people’s mind is uncertainty and trying to get a handle on what they can expect coming down the line. Of course, in dealing – I dropped over to the community hub, the service providers and the insurers are all there – and people without a home, they’re number one issue is getting a roof over their head. So that’s got to be the most pressing issue.
CRANSTON:
Yeah.
JONES:
Dealing with those emergency responses and then we can start looking at what reconstruction looks like.
CRANSTON:
Well, given the number of people that were not insured or underinsured, do you have an idea of what the full extent of losses are from this disaster?
JONES:
It pretty much tracks income.
CRANSTON:
Yeah.
JONES:
You know, I think it’s a bit of a truism that the less well‑off you are the less likely it is that you’re going to have insurance, which means, you know, this disaster has had a significant impact on those lower income households. So that’s why we’ve got to wrap around them. And those people who do have insurance, ensuring that they get everything that is owed to them under the contract, and we don’t want to make one tragedy worse by having them embroiled in disputes with insurance companies. So that’s why – one of the reasons I’ve been working in advance with the insurers to ensure that we have a coordinated response, that they’re here on the ground, that they can hear the stories and if systemic issues come up, we can get on to them quickly.
CRANSTON:
We are hearing from a lot of people that each – you know, we’re hearing a lot of great stories and a lot of insurers are coming to the party, but everyone is having very different experiences depending on which insurance company they’re with. And I guess the big concern for people are whether premiums are going to increase. You know, it’s already out of the reach for some people, and following the weather events we’ve had, are premiums going to increase?
JONES:
Look, I can’t – what I can say is they did go up and they’ve been going up for the last couple of years. I think they had the biggest jump across the country last year – about 22 per cent increase last year. Important to get a handle on why these things happening. Part of it’s international. Right around the world re‑insurers – these are the companies that insure the insurance companies – are putting their premiums up, so that’s pushing up the premiums for the cost of capital for the insurance companies. They’re also looking at the impact of severe weather events and climate change. We’ve got more people living in coastal areas than ever before, including this beautiful part of the world. So, all of these things are coming together, which is meaning insurance companies around the world with re‑rating the risk.
If you think about what insurance is as a product, it’s about risk and the risk of an event occurring, whether it’s a car accident, a severe weather event or your house getting burned down. So that’s a part of it. But it’s also a proxy measure for the replacement cost of one of those items. So, think about if your house value has gone up, the value of replacing your house is going to go up. If your car prices have gone up or workforce and labour costs have gone up, then the cost of replacing them is going up. And that’s feeding into insurance premiums and insurance costs as well. So, you’ve got like a perfect storm of things, no pun intended coming together here.
CRANSTON:
A perfect storm – exactly. That is the phrase. Look, my guest – I just want to re‑introduce, my guest is the Assistant Treasurer and Financial Services Minister Stephen Jones.
It is a perfect storm. We have a cyclone reinsurance pool in northern Australia. It’s underwritten by the federal government to the tune of $10 billion and was supposed to make insurance premiums more affordable. But the recent weather event has highlighted flaws in the legislation as it limits the window for insurers to make a claim to only 48 hours. And this flood event happened outside of that; it was sort of over the next couple of days, but no doubt that Jasper was to blame. How can that be resolved, because that is a big issue?
JONES:
There’s a bit of confusion and misinformation getting out around about this. So, can I clear a couple of things up?
CRANSTON:
We would love you to, yes.
JONES:
Firstly, the reinsurance pool is a contract between the government and the insurers –
CRANSTON:
To pay the difference.
JONES:
To pay – it enables the insurers to make a claim upon the reinsurance pool, the government‑run reinsurance pool, to reclaim some of their losses. It’s not the contract that the insurers have with individual householders. And what people are entitled to is what the policy says they’re entitled to with their individual insurer. So, we’ll have a look at the pool and this 48‑hour window. I’ve got an open mind on it.
CRANSTON:
Because that may be affecting people – I know you say it’s the individual’s policy – but if the insurance company is only being given that extra money for – if the event happened within 48 hours, then it’s not helping people with their policies at all and it’s not doing what it was supposed to do.
JONES:
I’ve spoken to all the insurers, and they’ve said those terms aren’t replicated in their individual contracts.
CRANSTON:
Right, okay.
JONES:
And they’ve got other reinsurance contracts with private sector companies as well, not just with the government. So that’s the first thing I’d say. The second thing, I mean, unfortunately when the scheme was introduced by the former government and implemented by us it was oversold. It was said this was going to be the silver bullet, you know, premiums will go down by 50 per cent, and that was never going to be true. It was never going to be true. So expectations were up. What was going to be able to be delivered was always going to be something far more modest than that. Is it a good thing? Yes. Will it make a difference? Yes. Is it going to be a silver bullet that halves insurance premiums? No.
CRANSTON:
So, who –
JONES:
And it was never going to be able to do that. So, what we need to do is ensure that it’s operating as effectively as possible. But I think most of the, you know, solutions in the area of insurance and insurance affordability actually lie outside of insurance and not inside. It’s about what we’re doing to make our infrastructure better to deal with severe weather events and our houses better. Like, there’s a reason why in Darwin, for instance, when they have severe weather events the houses, the town isn’t flattened. Because after Cyclone Tracy they ensured that every new building that was built in the place was built to cyclone standards so that they were able to withstand these severe weather events.
So, that’s what I mean when I say a lot of the solutions lie outside of insurance. Insurance is what happens when everything goes wrong. The best solutions are about ensuring we have better buildings, better infrastructure and better resilience.
CRANSTON:
So, less damage, absolutely.
JONES:
Less damage in the first place.
CRANSTON:
Well, one of the other questions is: what does the future hold for areas that do flood? Will insurers just refuse to cover?
JONES:
We’re already seeing that in other countries around the world.
CRANSTON:
Yeah.
JONES:
Parts of Florida, for example, not unlike, you know, parts of Australia – high cyclone incidents, high flood incidents, insurers won’t insure there. And, you know, there’s other parts of the world where they just simply don’t insure any more. What we – and I was up in Europe earlier last year talking to the global re‑insurers, and I said what can Australia do to ensure we don’t go down that path. They essentially said the first thing is stop doing dumb things, like building the wrong buildings in the wrong place. So, if you know somewhere is a flood plain, stop building new suburbs in flood plains. If you know somewhere is –
CRANSTON:
So, council needs to be – to take some of this on?
JONES:
I think there’s a big role for planning – in the planning authorities and the building codes and those sorts of things.
CRANSTON:
Yep.
JONES:
This is not a get out of jail card for the insurers; they’ve got to deliver everything that’s in the insurance contract, but I think the best solutions are going to be around these other things, which are making our houses more resilient and our suburbs and cities more resilient and stop doing dumb things, which is building the wrong buildings in the wrong places with the wrong materials.
CRANSTON:
In the wrong place, absolutely. Look, there were a few more questions I was hoping to squeeze in, but we are coming up to news time. I do want to ask you about the forum that you’re holding this afternoon. Now, that’s for community leaders and groups to come together to talk directly with insurers. What are you hoping will come out of that forum?
JONES:
Look, as systemic issues come up that we’re able to resolve immediately, that we resolve them immediately and we don’t let them run on. And if there’s information getting around that is not accurate, dealing with it upfront so that it doesn’t take hold. So essentially trying to get ahead of issues, Amanda, and ensuring that if people are struggling, if we’re able to resolve those things, we do it and do it immediately. So, you know, basically putting people in contact with the right people.
CRANSTON:
And who will be there? Like, which groups, which leaders and community groups are you looking at meeting today?
JONES:
The councils, the regional organisations of councils, the business organisations –
CRANSTON:
Like the Advance Cairns, the tourism groups, yeah.
JONES:
And community representatives as well. So, some of the people in the frontline service areas. And, importantly, it’s not going to be the last one. I just wanted to get up here as quickly as possible after the flood waters have subsided, and the clean‑up had been underway to organise this. And we’ll do more as issues arise, we’ll ensure that people have got a place to go to.
CRANSTON:
Fantastic. Well, we hope that people were able to express to you just the devastation they’ve gone through. I appreciate you coming in this morning, and hopefully good things will come out of the forum this afternoon.
JONES:
Amanda, great to talk to you.
CRANSTON:
That was the Assistant Treasurer and Financial Services Minister Stephen Jones, and he will be meeting with industry leaders and council and community groups today to see what we can do in the region.