Businesses struggling to keep up with soaring insurance premiums would benefit from the immediate reform of state insurance taxes, the Insurance Council of Australia says, as warm and dry conditions lead to increased bushfire risks leading into summer.
In its third annual Insurance Catastrophe Resilience Report released Thursday, the peak organisation representing Australian insurers circled the affordability of insurance as its number one concern.
Sky-high premiums lead to underinsurance, which can leave small businesses and households exposed to severe financial risk in case of a natural disaster.
State insurance taxes, which insurers pass on to businesses and households in the form of premiums, are contributing to the costs faced by consumers, said ICA CEO Andrew Hall.
Some jurisdictions have already begun winding back their insurance tax policies, with Victoria pledging to wind down its 10% insurance tax rate by one percentage point a year from 2023-2024.
The ICA welcomed that move when it was announced, but believes sharper reform would assist policy-holders struggling to stay insured.
“We need governments to act now and reform state insurance taxes to bring immediate relief to homeowners and businesses,” Hall said.
Insurance duties are only part of the equation, with rising natural disaster risks making it costlier for insurers to actually cover policyholders.
Ahead of a bushfire season which experts warn could pose a significant risk to much of Australia, the ICA has called on increased resilience and mitigation funding to address physical risks before disaster strikes.
It recommended a rolling 10-year program with indexed funding, on top of the five-year, $1 billion Disaster Ready Fund confirmed in last November’s federal budget.
“The financial impact of insurance catastrophes over the past 12 months was around one-fifth of the cost of the previous record-breaking year, but more benign weather conditions should not provide false hope that the issues of worsening extreme weather risk have gone away,” Hall said.
Mapping the damage of prior disasters over today’s property numbers and values “shows that when – not if – extreme weather events strike large population centres in the future we can expect them to have a greater impact and be more costly, making the case for risk mitigation even more pressing,” Hall continued.
“We can’t wait until disaster strikes, we need to act now by investing more to make communities more resilient, reform land-use planning and building codes and, in some cases, move people and homes out of danger altogether.”
Home buy-backs where there is no realistic way to protect properties from natural disaster damage, and better development planning to stop construction in disaster-prone regions, are also on the ICA’s agenda.
For developments that will stay in place or already have the go-ahead, the ICA recommends improved building codes and retrofitting to improve structural resiliency.
Beyond calling for tax reform and mitigation strategies, the paper also lays out how last October’s major flooding across Victoria, New South Wales, and Tasmania financially harmed small businesses.
SMEs accounted for nearly half of all commercial insurance claims by value, the ICA said, with the sector making building claims valued at $30 million, and property claims of $27 million.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
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