Australia could be a step closer to having a government backed flood reinsurance pool. Two of Australia’s insurance industry leaders indicated that a public-private intervention to deal with the country’s growing home insurance protection gap is necessary and could include adopting parts of the UK’s Flood Reinsurance Scheme (Flood Re). A scheme like this could benefit brokers by allowing them to offer flood insurance to more clients, particularly in high-risk areas.
At a media briefing at Marsh McLennan’s London office on Monday, the Minister for Financial Services Daniel Mulino (pictured above left) said there are “aspects” of the UK’s Flood Re system that his government needs “to look very carefully at.” Andrew Hall (pictured above right) CEO of the Insurance Council of Australia (ICA), also expressed a strong interest in the UK’s approach. He said Australia’s industry accepts that intervention will be required “at some point” to deal with Australia’s “huge risk peril problem.”
Flood Re is funded by a levy on all home insurers in the UK and is intended to run until 2039. By that time, the aim is for the insurance market to price flood risk more accurately without government intervention. Some UK industry stakeholders have reported that Flood Re has been very effective and helped about half a million households access more affordable insurance.
During the briefing’s question time, IB asked Mulino and Hall – given that they seemed to like the UK’s approach – what would be the next steps for adopting a similar flood scheme in Australia?
“What I would say is, I think there are aspects of Flood Re that we need to very carefully look at,” said Mulino.
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He qualified that by saying it was too early to be “definitive” about the success of the UK system.
“But there appear to be accessibility and affordability benefits from it which warrant closer examination and evaluation,” said Mulino. However, he warned against directly “cutting and pasting” this solution into an Australian perils context.
Hall underscored that Australia is facing a more difficult flood challenge than the UK’s.
“We have, as a percentage to population, a higher percentage of homes that were built in the wrong location that face high risk,” said Hall. He also said soaring asset values are another big issue.
“So it is good to learn from the schemes that have been put in place in other jurisdictions - we do need to think about an Australian solution for the Australian problem,” he said.
Hall said a key principle behind any flood scheme would need to be that it helps and not disrupts the market.
“We've got to keep in mind that consumers still want to buy a comprehensive insurance policy and not really think any more about it than that, so being able to achieve that is really our ultimate goal,” he said.
When consulted by IB, brokers and underwriters have expressed a range of views about the virtues and drawbacks of government backed insurance schemes. Most tend to be wary of any form of direct government intervention in the insurance market.
What do you think a public-private insurance scheme partnership to help close the home insurance protection gap should look like? Please tell us below.
