MURRAY JONES:
Nice and steamy for the Assistant Treasurer who joins us this morning, and actually spending some time in Cairns, also the Minister for Financial Services. Stephen Jones, good morning, Minister, how are you this morning?
STEPHEN JONES:
Murray, good to be with you again, mate. Really good. Enjoying some of the steamy, sauna‑like weather up here in Cairns, it's fantastic.
MURRAY JONES:
It certainly is. Look, it's great to have you here because there's an interesting story in the Cairns Post this morning, talking about the economic development bodies of North Queensland, Advance Cairns, Townsville Enterprise, and Greater Whitsundays Alliance, have joined forces to seek a better outcome for the wider region amid questions around the effectiveness of the $10 billion Cyclone Reinsurance Pool. It was obviously an initiative of the former government, but it's something that the current government is running with and trying to make it work. I guess at the end of the day, you know, it is likely to be something that needs to be changed and fine‑tuned, particularly after the test that it's had just in the last couple of weeks, Minister.
STEPHEN JONES:
Yeah. Look, I read the story, and I'll be engaging with those groups later today at a forum I'm holding over at the Council chambers, a lot of the things, in fact most of them I think I've already got underway, but happy to have a more detailed conversation with them about those issues.
On the Cyclone Reinsurance Pool, just a couple of things if I could. I hope – I don't want to take too much time on it, but this is, if you like, insurance for the insurers, and it was designed by the former government, legislated by the former government to attempt to take some pressure out of the cost of insurance premiums because reinsurance is a significant cost, it's about 30 per cent of the sticker price of an insurance contract is the reinsurance cost.
So, setting up a not‑for‑profit reinsurance pool for cyclones was about trying to reduce some of that cost. It was probably a bit over‑sold to be frank. You know, if people were getting around saying, your premiums were going to be reduced by 30 or 50 per cent, that was probably an edge exaggerated claim, it was never going to be able to meet that. That's not a criticism of the pool, it's just saying when we're doing these things, don't over‑promise, because you're going to disappoint people on the other side.
So, all of that said, I'll have a look at it. I know there's some concerns and issues around the 48‑hour rule inside the reinsurance pool. Can I take this opportunity, Murray, to say that has zero impact on what somebody's entitled to under their insurance policy. What somebody is entitled to under their insurance policy is what it says in their insurance policy.
MURRAY JONES:
Sure, sure.
STEPHEN JONES:
The reinsurance pool is just what the insurers can claim back from the government once they've paid something out to their customers. But what a customer is legally entitled to is what they're legally entitled to under their insurance policy; it's got nothing to do with the arrangements between the government and the insurer. So, I just wanted to clear that thing up.
We'll have a look at the pool, make sure it's operating as intended, but the purpose of this forum and the next visit I make will be to ensure that the insurers are doing the right thing by their customers.
MURRAY JONES:
Now look, the organisations that I mentioned before are calling for the review to extend the post‑cyclone period of coverage from 48 hours to 168 hours, which is seven days, in line with global reinsurance standards. Have you had a chance to consider that aspect of certainty of what they put forward so far?
STEPHEN JONES:
Yep, I'll look at it. I've got an open mind on this. Again, if we make those changes it won't impact on this event, because what people are legally entitled to is what they're legally entitled to now.
MURRAY JONES:
Sure, yeah.
STEPHEN JONES:
And, but yep, I'm happy to have a look at that, and see what – there will be swings and roundabouts in it, by the way. But yeah, happy to have a look at that issue and all the other issues that people are looking at. My number one concern at the moment though, mate, is to ensure that everyone's getting what they're legally entitled to under their existing policies.
MURRAY JONES:
And look, you know, when it comes to competition as well, unfortunately due to the damage that has occurred in some of the areas, particularly around the Northern Beaches, and of course for strata title as well, which has been one of those ongoing issues for people right across the Tropical North, there is a concern that, you know, obviously competition is one of the key things to try and keep some of these costs down. More and more insurers are likely to actually pull out of the region as a result of what's happened.
STEPHEN JONES:
Yep.
MURRAY JONES:
Or basically say that specific areas, particularly if they're close to water courses and beaches, they're simply not prepared to insure them. You know, that's a really difficult one; you know, how do we move forward to ensure that people actually do have adequate coverage, despite the fact that they're in some of those more difficult areas that unfortunately the insurance companies just don't want to touch?
STEPHEN JONES:
Yeah, I think a couple of things on that. It's not just happening in Australia, right around the world, you know, parts of New Zealand, Japan, Florida, California, anywhere where there is persistent, consistent severe weather events, natural catastrophes, insurers are withdrawing from those markets.
I went up to Europe late last year to have a conversation with the global companies to say, "Okay, right, what do we have to do in Australia to ensure that we don't go down the same path?" They essentially said, "You've got five years, it's about mitigation, which is about firming up your infrastructure, ensuring that your houses are built to better standards, and by the way, stop doing dumb things, like building suburbs in floodplains."
MURRAY JONES:
Sure, yeah.
STEPHEN JONES:
Which is not a bad place to start. We know, if we're 100 per cent certain that the place is going to flood, then we shouldn't be saying to developers, "Yeah, you can build and sell houses in those areas." That's just nuts, because, you know, the end result of all of that is somebody will be unable to get insurance.
So, there's about three or four things we've got to do, Murray, so firm up better – ensuring that we're building back better when we're replacing infrastructure, that the Building Codes are strengthened to ensure, like in Darwin, for example, that you have cyclone‑proof housing, and that we can put those mitigation things in place for local households as well.
MURRAY JONES:
Now look, we well know that areas that have got high population densities are in a position certainly from, you know, a commercial aspect for insurers, for them to be able to actually keep premiums low because of just purely the numbers of people in those specific areas.
STEPHEN JONES:
Yep.
MURRAY JONES:
They can actually earn their money back a lot quicker, and I guess it's less of a risk for them. You know, in smaller areas like Cairns, where you've got a smaller population, obviously getting that money back after, you know, costly events like what's occurred with, you know, the aftermath of Jasper makes it more difficult. I know they already spread the risk, but encouraging insurance companies to actually spread that risk a bit further, is there anything that can be done in that regard as well?
STEPHEN JONES:
Yeah, look, the reinsurance pool is part of that. It's about – it's insuring the reinsurers, basically, insuring the insurers so they can spread those risks, the risks of one location, Far North Queensland, or Northern Australia, for example, over a bigger pool. That's one of the reasons it was set up, it was designed to do that.
So, reinsurance is a way of spreading the risk further, and ensuring that, you know, businesses are viable. But, you know, the best solutions, as we've said a couple of times, actually lie outside of insurance, and that's better infrastructure, better housing and not doing dumb things like building the wrong house in the wrong place.
MURRAY JONES:
Well, speaking of a situation with what was deemed, and I think we had this discussion a few weeks ago about being a one in 100 years flood, possibly now becoming a one in 50‑year flood, I guess there's a lot of lessons to be learnt. The thing to keep in mind is that it is a new initiative, and of course it is a complex initiative as well.
It's great to have you here in town, and of course talking to some of the key stakeholders to assist in moving forward, and of course what's been a very good test of the reinsurance, or the cyclone pool as well. Stephen Jones, Assistant Treasurer, welcome to Cairns, and thank you so much for your time this morning. Enjoy your time here in the Tropical North.
STEPHEN JONES:
Thanks, mate. Always good to have a chat. Cheers.
MURRAY JONES:
Cheers.