Expert calls for national disaster insurance scheme

Expert calls for national disaster insurance scheme

08 November 2010

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Australia —  A LEADING insurance expert has called for the introduction of a compulsory payment scheme to create a fairer system that will ensure equal treatment for people who lose their homes in a natural disaster.

PricewaterhouseCoopers partner Chris Latham said a national disaster insurance scheme was needed more than ever because climate change and increasing urbanisation meant natural disasters were becoming more problematic.

The Black Saturday fires, he said, highlighted the problems Australia faced, given home and contents insurance was not compulsory.

The Bushfire Royal Commission estimated around 13 per cent of destroyed homes were not insured while many more were under-insured. The commission found this had impeded the rebuilding process.

This prompted the Insurance Council of Australia to question whether uninsured people should be entitled to money from the appeal fund because it reduced the incentive to insure.

Mr Latham said that only 43 per cent of homes burnt down in the fires were rebuilt with insurance money, the rest used money from donations, government and ”other” unnamed sources.

Under his proposal, each Australian household would pay around $200 and receive home and contents insurance if they were affected by a fire, flood, earthquake or similar natural disaster.

The federal government would manage the fund and payout where necessary, ensuring equal treatment for everybody and an end to some households being paid out, while their neighbours were not because different insurance companies classified the event differently.

Mr Latham said similar schemes operated in the US and Japan, and they offered certainty and would make disaster insurance affordable for all Australians.

”One of the main points is … yes, we can muddle through the way we have in the past and most people get looked after, but it’s done in a very ad hoc way, relying on the government to step in.

”People might have their houses burnt down and they’re not insured and they can’t be sure that the government is going to step in and help. Then [they don’t know] what the level of donation is going to be.

”People need certainty around this sort of thing rather than just hoping someone will step in and look after them once they’ve lost their house.”

Mr Latham said the cost of the scheme would be offset by a reduction in home insurance premiums, which would fall as private insurers no longer covered natural disasters.

He said the federal government made an in principle decision to establish a national disaster insurance scheme after Cyclone Tracy in 1974, but it eventually lost support as the insurance industry recovered.

”Most governments feel as if they have a responsibility to look after their citizens if they’re insured or they’re not insured,” he said.

Mr Latham, who will address the Institute of Actuaries General Insurance seminar on this topic at the Gold Coast this week, said the scheme could be introduced within three years with government support.

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