With premiums rising as the frequency of natural disasters increases, Australian politicians are making insurance reforms part of their cost-of-living election pitches.
After recent flooding in north Queensland, the opposition leader, Peter Dutton, proposed intervening in the market to break up insurance companies and stop Australians being “ripped off”.
On Wednesday, the Greens launched their own insurance policy, which includes removing stamp duty on home and car cover.
Are these good ideas? And how would they work?
What has Peter Dutton proposed?
In an interview with Sky News last Sunday, Dutton said the Coalition could seek to break up insurance companies found to be overcharging policyholders.
Dutton said the Coalition’s divestiture policy – which threatens to carve up big supermarkets and hardware chains as a “last resort” to tackle price gouging – could also be applied to big insurers.
“As we’ve done with the supermarkets, where we have threatened divestment, if consumers are being ripped off, similarly in the insurance market, we will intervene to make sure that consumers get a fair go,” Dutton said.
Dutton repeated the idea in other interviews, but there was some confusion over his comments.
The Nationals leader, David Littleproud, told ABC Radio National on Monday the divestiture plan had not been approved by the joint party room as an official Coalition policy.
“It would be unfair to say that was a policy announced by Peter Dutton,” he said.
However, Littleproud also said insurance premiums had increased by an average of 19% since the last federal election and that the industry was “on notice”.
What’s at stake?
More than 50 companies offer home insurance policies, but most are subsidiaries of four large insurers – IAG, Suncorp, Allianz and QBE – which together account for about 75% of the market, according to consumer group Choice.
Concerns over premiums have been raised at a profitable time for the sector, with shares in QBE and Suncorp Group trading at or near record highs. Shares in Insurance Australia Group were also trading at record highs before a recent pullback.
Dutton has said the sector needs more competition, to create “depth in the insurance pool” and incentivise companies to lower premiums.
Is it a good idea?
The Insurance Council of Australia chief executive officer, Andrew Hall, responded to Dutton’s comments by saying Australia already had a “very competitive” insurance market.
Hall said prices were going up due to inflation in the building and motor repair sectors, the rising cost of extreme weather, “and the increasing value of our assets”.
Prof Yane Svetiev, an expert in market regulation from the University of Sydney’s law school, said the increasing cost of insurance premiums was “clearly a problem in the mind of many”.
But in his view, it was “not really clear” whether breaking up the industry, or threatening to, would increase “effective competition”, as it would be difficult to assign customers to different companies based on their risk profile.
“You might think, why are some of these smaller players not trying to capture the market by offering lower insurance premiums?” he said.
“What you might find is that a lot of these smaller players are afraid of ending up with … the higher risk customers, which would make them unprofitable.”
Svetiev, acknowledging governments in Australia were reluctant to regulate prices, suggested capping or controlling premium costs could be a better alternative.
What are the Greens suggesting?
A few days after Dutton’s interview on Sky, the Greens launched an election policy they claim will support cheaper insurance amid the climate crisis.
The Greens deputy leader, Senator Mehreen Faruqi, announced her party’s insurance policy on Wednesday in the New South Wales northern rivers region, which was devastated by flooding in 2022.
Faruqi chaired a recent parliamentary inquiry into the impact of climate change on insurance premiums, which the government is yet to respond to.
The Greens’ policy includes stronger disclosure obligations on insurance companies to explain premium pricing.
They propose incentives for state governments to abolish stamp duty on house and car insurance, which they say parliamentary budget office calculations show would save people across the country $4bn in its first year.
The Greens also want to expand the cyclone reinsurance pool – which allows insurance companies to transfer their risk for cyclone damage to the federal government – to cover all natural disasters.
And they want to bring in a “polluter pays” rule under which coal, oil and gas companies must contribute to the pool, and to the government’s Disaster Ready Fund.
Insurance expert John Morgan, an adjunct associate professor at the University of NSW, said the longstanding idea of abolishing stamp duty on insurance could make a small difference to premiums.
But improving maintenance of waterways and infrastructure would also “do a lot for the community”, he said. He pointed to the idea of “cross-subsidising”, where policyholders in lower-risk areas pay slightly more, to bolster those in higher-risk areas.
“The government needs to think very carefully about a market in which insurers will not aggressively use risk-based pricing for those exposed to particular climatic or other types of significant catastrophic risk,” he said. “But I don’t think it’s an easy answer.”
What’s going to happen?
Any legislative changes to Australia’s insurance policies will depend on the outcome of the election, due to be held by May.
The assistant treasurer, Stephen Jones, said Labor was “committed to making insurance more affordable for all Australians”, although the party is yet to announce any new reforms it plans to take to the election.
Jones said the government’s insurance affordability taskforce was coordinating a “whole-of-government approach to minimising disaster risk and reducing insurance costs”.
The Coalition is yet to confirm whether it will make insurance divestiture powers a formal election policy.
Asked earlier in the week about Dutton’s comments, and whether divestment powers would bring down premiums for consumers, the treasurer, Jim Chalmers said: “Nobody’s got a policy for that.”
If the Albanese government is returned with a minority, it may have to negotiate with the Greens to pass legislation through the lower house of parliament.
