MURRAY JONES:
Let's talk a little bit more about the reinsurance pool - where we are and I guess some of the lessons that we possibly learned in the last week or so after tropical Cyclone Jasper and the subsequent flooding. Stephen Jones, he's the Assistant Treasurer and Minister for Financial Services. He joins me this morning, good morning, Stephen. How are you today?
STEPHEN JONES:
Good, Murray, good to be with you again.
MURRAY JONES:
Nice to talk to you, it's been a little while. Let's talk a little bit more about the reinsurance pool. Looking to get to about a percentage of 95 percent of all Australian insurers being part of that pool. How are we going and what's it actually meaning on the ground for Australians and particularly for people in northern Australia?
STEPHEN JONES:
Yeah, look, the idea behind the reinsurance pool is to, over time, reduce the cost of insurance for households. And the way that works is by looking at what's the major cost components of an insurance contract or an insurance policy. About 30 per cent or up to 30 per cent of the cost of an insurance policy is actually the insurers insuring themselves - they call it reinsurance. It's where they offset some of their risk by selling it on to somebody else. Now, the cyclone reinsurance pool, the idea of it is to take one part of the risk, which is cyclone, and have the government on a not-for-profit basis establish its pool. All the insurers offering insurance in North Queensland are required to join it by the end of the year. Overwhelmingly they have, and over time it should reduce the cost. It's not a silver bullet, but it will provide some reduction in the cost for households in their insurance premiums.
MURRAY JONES:
Are there concerns that possibly the insurers may actually pocket some of the difference here? Because I guess it reduces the risk for them. Are there any guarantees they're actually going to pass these savings on, though?
STEPHEN JONES:
Look, we have looked at that quite closely and we've got the Australian Competition and Consumer Commission monitoring prices. The clear understanding that we have with the insurers is then needs to be passed through of any savings that they make through the reinsurance pool. And that's what we'll be looking at very closely.
MURRAY JONES:
Now, look, I should imagine that after the event that we've had just here in tropical North Queensland, after the last week or so, the importance of insurance has become, I guess, crystal clear for so many North Queenslanders. It's been a tough time. But of course, there are also other things that we can do and look, competition at the end of the day and actually making sure that you do shop around and find out exactly who is offering the best insurance, you know, the best insurance, based on hopefully comparing oranges with oranges. That's, I guess, one of the things that will also try and keep it fair and make sure that these savings are actually passed on to the consumers.
STEPHEN JONES:
Yeah, absolutely. What we saw over the last four or five years is a whole bunch of insurers just vacating the market. And one of the objectives of the reinsurance pool was to encourage them back, and that's worked. There's at least two new insurers that have entered the market as a result of the insurance pool being up and running. Of course, there's a bunch of other things we've got to do and you've just hinted at a few of them. So, we've got to do some things at a community-wide scale, which is improving infrastructure and firming up when we have a big event like this, ensuring that we learn from it - ensure that we build back our infrastructure better and more resilient. Same thing goes at the household level, ensuring that we can do the rebuild to firm up our houses and our communities. Sorts of things that we're looking at as a government is - what's the equivalent of locks and bars on your windows when it comes to cyclones and floods? You get a reduction in your insurance premium if you put locks and bars on your doors and windows - what's the equivalent of that for a household? So, you can reduce risk and therefore your insurance premium. So, exploring these things as well.
MURRAY JONES:
Yeah, certainly mitigation is something we need to consider. You know, one of the biggest concerns for us here in tropical North Queensland is this is deemed to be a once-in-a-hundred-year flood. But as we well know, the science continues to show and the data is basically indisputable, is that we're getting more and more of these type of events and they're likely to increase as well. So, I guess the goalposts also continue to change. I mean, what we've just seen is, what deemed to be a once in a 100-year flood. Chances are that it's not going to be a once-in-a-100-year flood. This might start to happen more regularly right across the state and particularly across Northern Australia.
STEPHEN JONES:
Yeah, a couple of things we got to look at. I mean, you've hit the nail on the head. Lismore, I think, had three 100-year events in a two year period. So, clearly the climate is changing and weather patterns are changing. But also, we've got to stop doing dumb things like building suburbs in flood zones. If we know somewhere is a flood zone, then we’ve got to stop building new developments in those areas and we've got to improve water management - water flow management in the areas where we know they might not be a flood zone, but they might be at risk from these big weather events doing things like that. So, look at what Darwin did after Cyclone Tracy, that flattened that town. But when they built it back, they built it back to a higher standard.
MURRAY JONES:
Sure.
STEPHEN JONES:
So, all of these things we've got to look at. And you know, we often think we're the only country in the world going through these things. Right around the world, countries are having to deal with the same challenge. We're sort of seen in the same bracket as New Zealand, Japan and many of the states - particularly on the west coast of the US and down in Florida as well, where we have similar exposure to extreme weather events. And it's impacting our insurance premiums, it's impacting theirs. And in fact, some of those places I've mentioned, they can't even get insurance anymore. So, yeah, we've just got to build stronger and better buildings and stop building the wrong buildings in the wrong place.
MURRAY JONES:
Going to be some big changes, I guess. And I guess a rethink in relation to a lot of things. But recovery for the short term, but some really sobering things to think about moving forward. Great to talk to you this morning and about some of these initiatives to keep community safe. That's what it's all about. Stephen Jones, he's the Assistant Treasurer and Minister for Financial Services. Thank you so much for your time.