Is a government flood pool a good idea?
Is a government flood pool a good idea? | Insurance Business Australia
Catastrophe & Flood
Is a government flood pool a good idea?
“That’s a big question for our country,” says IAG’s CEO
Catastrophe & Flood
By
Daniel Wood
Earlier this month, leaders from Australia’s biggest insurers appeared at the government’s inquiry investigating the industry’s response to the 2022 floods. More insurers are appearing this week.
During his appearance, Allianz Australia’s managing director, Richard Feledy, strongly reiterated his firm’s support for a government insurance pool to cover floods.
At their hearing appearances, the leaders of Suncorp Group and IAG didn’t mention the possibility of a flood pool.
Given the lack of affordability and availability of flood covers in Australia’s high-risk areas, is a government subsidised flood pool, modelled on the Cyclone Reinsurance Pool, a good idea?
A big question
During an interview last week with IAG’s CEO Nick Hawkins (pictured above), Insurance Business asked the question: so where does IAG stand on establishing a government funded flood pool, much like the current cyclone pool?
“I think that’s a big question for our country,” said Hawkins.
He said “we know” that Australia is going to experience an increased severity and frequency of natural catastrophes. Over the last century, said Hawkins, properties have been built in places that are subject to this increased severity and frequency.
As result, he said, “unfortunately” the future will see these risks going up.
“We know that the only real solution to that over time is investing in mitigation [and] strengthening resilience,” said Hawkins. “As well as making sure that anything we do next is in line with that expectation around planning decisions we’re making.”
The CEO said this includes factors like the location of property developments, building standards and the strength of roofing tiles.
“Just to strengthen the country,” said Hawkins.
Then, he said, comes the “challenge” of “how do we manage that?”
Hawkins said insurance plays an important role.
“We’re the shock absorber helping businesses and customers manage that,” he said. “Government is also supporting that – and that affordability question that importantly comes into that discussion.”
He described a government funded flood pool as one possible way of managing nat cat risks.
“A flood pool is a mechanism,” said Hawkins.
A “full spectrum”?
However, the tone and content of his response suggested it is not his favourite option.
“I’d like to think that our country is going to look broader than just that,” said Hawkins. “If we have to come up with some interim solutions over the next five to 10 years to help, before we get the benefits of investment [in prevention and mitigation], there are a number of solutions available, subsidies and other types of arrangements.”
The IAG CEO said he’d “like to think” that the government is going to look at a “full spectrum” of ways that support could be offered to people and businesses in “higher perils risk” locations.
IB asked Hawkins if his answer indicated possible support for government subsidies but not for a government funded cyclone pool?
“I think we need to look at a whole range of options that are available before we sort of jump to what is the best outcome for our country,” he said.
A fact sheet on the website explains that the ARPC is monitoring insurance premiums “to ensure savings are passed through to policyholders.”
Does the Cyclone Reinsurance Pool work?
However, some industry stakeholders have raised serious questions about whether the cyclone pool is functioning as intended.
A joint media release from the groups blamed ongoing insurer reluctance to provide quotes for new policies as “exacerbating” the strata market’s serious market shortfall in Northern Australia.
What do you think of a government backed flood pool to cover high flood risks? Please tell us below
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