The Tasmanian government says its proposed state-run insurer would save families about $250 per year. The Insurance Council of Australia (ICA) said TasInsure “would put significant financial risk on to the public balance sheet while failing to do anything about the underlying causes of insurance pricing.”
Insurance Business is seeking the views of insurance brokers in Tasmania.
Tom Allwright (pictured above) pointed to a “practical solution” where the government could help make insurance more affordable. Allwright is principal partner of brokerage McLardy McShane Insurance Advisors in Tasmania.
“One of the most practical solutions would be for the government to actively support the development of targeted mutual schemes for hard to place risks, particularly for industries and community groups where traditional markets are not servicing,” said Allwright.
The Hobart-based broker said during his earlier career in adventure tourism he was directly involved with Tourism Industry Council Tasmania (TICT). He saw operators who were “heavily impacted by tightening insurance markets.”
“Mutuals, backed by strong governance, professional underwriting management and adequate capital reserves have worked elsewhere by pooling risk among members and providing tailored and affordable coverage,” he said.
“Better risk management support helps lower claims exposure, improving insurer appetite and ultimately reducing premiums at the source,” he said. “This provides a long term solution rather than chasing short-term interventions.”
IB asked what his initial reaction was to the TasInsure proposal.
“My initial response is that it’s a politically popular announcement, not a properly costed proposal,” said Allwright.
He broadly agreed with the ICA’s dim view of TasInsure.
“There isn’t a single successful example globally of a broad-based, government-run general insurer operating sustainably, but there are plenty of cases, including here in Australia and Tasmania, where these models have failed,” said Allwright.
The broker said all government run general insurers have ultimately required taxpayer bailouts, scaling back, privatisation, or had to narrow their scope and heavily subsidise premiums.
“I expect that once Treasury properly assesses the financial risks, claims liabilities and reinsurance costs, this proposal will quietly be shelved,” said Allwright.
He said TasInsure is a simplistic solution to a complex problem.
“The cost of claims, reinsurance, and capital requirements won’t change just because the government says so,” said Allwright. “A state-owned insurer would still have to operate within the same market forces.”
He suggested that concentrating risk in a small regional market like Tasmania could introduce significant volatility.
“With a limited pool of policyholders, a major bushfire, flood, or liability claim would have a disproportionate financial impact and ultimately, it’s the taxpayer who may be left covering the shortfall,” said Allwright.
A new TasInsure website provides some details of the entity’s structure. Initial capitalisation is to be sourced from the Motor Accidents Insurance Board (MAIB), the government owned insurance company that underwrites the compulsory insurance component of motor vehicle registrations.
IB asked Allwright if he agrees with Tasmania’s Liberals, who say that the insurance market has failed in Tasmania.
“I get why Tasmanians are fed up with rising insurance costs – it’s an issue we face daily and one of our top priorities,” he said. “Everyone deserves access to affordable protection, but creating a government insurer isn’t the solution.”
Allwright drew attention to two government levies that are often criticised by insurance industry stakeholders. He called them “a major factor driving unaffordability.”
“Tasmania remains the only state in Australia charging up to a 28% fire services levy on commercial property, business, and farm policies,” he said.
Scrapping this levy and also the additional 10% stamp duty on premiums, said Allwright, would signal the government’s genuine desire to help affordability and be “a far more effective first step.”
“These taxes clearly contribute to both unaffordability and underinsurance,” he said.
Premier Jeremy Rockliff has said that his proposal will offer affordable insurance to Tasmanian families, “ensuring more properties are properly insured.”
What’s your view of the TasInsure proposal.? Please tell us below.
