IAG warns against national disaster insurance scheme
IAG warns against national disaster insurance scheme
05 March 2011
published by www.smh.com.au
Australia — INSURANCE Australia Group has cautioned against the government launching a national disaster insurance scheme, claiming it could push up premiums and lead to risky housing developments in flood-prone areas.
While a program like the New Zealand government-backed Earthquake Commission works well to provide some insurance cover there, IAG chief executive Mike Wilkins said a similar program in Australia to cover floods or bushfires could distort the insurance market.
The Gillard government yesterday raised the prospect of a bigger role for Canberra in providing disaster insurance, including potentially providing subsidies for those in high-risk flood zones who would not otherwise be able to afford cover.
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The proposal will be considered as part of a review of disaster insurance in Australia. Other areas to come under scrutiny include examining whether a national insurance scheme should be put in place to protect home owners and business from floods, bushfires and other disasters.
But a national scheme for disaster insurance is expected to meet fierce resistance from private insurers, including the nation’s biggest, IAG.
”I’m not a proponent of pooled [insurance] unless the risk is unknown or it is randomly spread across an entire population,” Mr Wilkins told BusinessDay.
”New Zealand is a country on a series of fault lines. So the prospect of an earthquake occurring in Christchurch, in theory, is the same as the prospect occurring at the other end of the tip of the North Island.
”Where disasters are able to be risk-rated and where pricing can be appropriately set, a private-sector solution beats a pooled solution any day of the week.”
New Zealand’s Earthquake Commission covers people who buy fire insurance for the first $NZ100,000 ($A74,949) of earthquake damage to their homes and up to $NZ20,000 for personal property. Private insurers cover any claims above that.
IAG sells insurance in Australia under the CGU, NRMA and RACV brands. It is also one of New Zealand’s biggest general insurers.
Mr Wilkins said pooled schemes represented ”enormous cross-subsidies” to those who did not have flood risk from those who did.
”You also get the moral hazard that comes with it,” he said. ”You get the moral risk of people choosing to live on a flood plain knowing they’re not going to get the right price for the risk that’s facing them.”
Assistant Treasurer Bill Shorten said yesterday the review would provide an opportunity to examine issues relating to disaster insurance.
