Sorry for the length of this but in order to answer some of the questions I've been asked I couldn't make it shorter. Taskforce: The Taskforce has been set up by the current Federal Government with a budget of $2M. However, I understand it has the support of Labor and other parties. The Taskforce is the Northern Australian Insurance Taskforce and not just for Northern Qld, although it has been clearly established this area has been hit the hardest over the last 4 years by the increases which are still going in some areas. The Taskforce itself consists of Federal Treasury people the head of which is Mike Callaghan, a former Executive Director in the Australian Treasury. None of the Taskforce live in Qld and most have never been north of Brisbane, which they freely admit. It has been a huge task to bring them to a level of understanding over 11 weeks which it has taken me 4 years to get to. But they have coped well with the influx of information and have actually read some of the documents I’ve written over the years. All the Advisory Panel got a chance to put forward people for them to talk to on a one to one basis, I put forward about 16 contacts from Cairns to Mackay. They managed to get to some of these but time and location constraints meant others were missed. They’ve also spoken to people such as BOM, CSIRO, Actuarial Institute, Insurance Council of Australia, National Insurance Brokers Association (a lot of their members), various insurance companies, Body Corporate Managers, cyclone testing stations, JCU, Property Managers, Cairns Chamber of Commerce, of course the Qld Department of the Premier and Cabinet – you name it they have tried to talk to them to get their knowledge and opinions. Advisory Panel/ Reference Panel: The Federal Government set up an Advisory Panel to help the Taskforce consisting of 7 additional members from various expertise and experience: Rob Whelan, CEO of Insurance Council of Australia; Dallas Booth, CEO of National Insurance Brokers of Australia; Gerald Ewing, CEO of Regis Mutual Management; Joan Fitzpatrick, Chair of the Australian Reinsurance Pool Corporation Board; Fiona Guthrie, Executive Director, Financial Counselling Australia; Craig Wilson Senior Executive Director, Economic Policy Group at Department of Premier and Cabinet (Qld); and me. I was put forward by Warren Entsch who is the Federal Member for Leichhardt (Cairns area) and I’m the Northern Australian Consumer Representative – the one who tries to explain what this insurance crisis has done to normal people in north Qld and the economy here. This is a voluntary position, no pay. The problems: The ICA still believes there hasn’t been a problem, there isn’t a problem and that it is cyclic and will correct itself without interference. However, the Taskforce is not there to establish or define the problem they have been formed to look at the 2 main options for a solution. How to define affordability is a problem. According to the Actuaries Institute 49% of Australians spend 1 week or less of the average Australian weekly salary (before tax) on their insurance. This means 51% spend more than 1 week’s average salary. They say 37% spend 1-2 weeks, 10% spend 2-3 week’s salary and 4% spend 3 week’s or more of the average weekly salary on insurance. Now this is the average Australian salary not the average Australian salary in North Qld. Even Allianz Australia has stated in writing that ‘average premiums between North Queensland and elsewhere involving multiples of 2.5 times reasonably reflect differences in risk’. Allianz Australia noted, however, that ‘this conclusion becomes harder to sustain in light of evidence that some homeowners face premiums of ten or fifteen times those of other Australians’. Options: Whatever option is recommended I think it should be an option which will work in conjunction with existing insurance companies and not in competition with existing insurance companies. There will never be another State own insurance company, even the TIO (Northern Territory insurance company) has been sold this year to Allianz. I haven’t seen the actual models put forward to the Taskforce but I have taken the time to meet with people from the Reinsurance Pool and from a Mutual so I can better understand how they work and what they might be able to achieve. Reinsurance Pool: The Australian Reinsurance Pool Corporation: OK, back after 9/11 no-one could get insurance for acts of terrorism, so the then Federal Government set up the Australian Reinsurance Pool Corporation in 2003 to cover the whole of Australia in cases of terrorism which resulted in claims above a certain limit. They provide effective reinsurance for existing insurance companies for terrorism. They have built up their net assets over the years to $550M, and they have a $2.9B retrocession program. This means they spread their risk amongst other international insurers and pay a premium to them to be covered for $2.9B. Then, if that isn’t enough, they have a Federal Government guarantee of $10B. So in fact it currently costs the Government nothing as there hasn’t been an act of terrorism they have needed to intervene in insurance wise, AND the Government gets paid interest/commission every year for the guarantee. So in this specific case is hasn’t cost the Government anything and has provided the Government with income. However, for cyclones there could be a potential problem, the Government may have to intervene at an earlier point since we don’t know when the next major cyclone will happen. It could happen before the pool has built up its net assets and before it has the money to pay for the retrocession reinsurance. There are 2 ways a reinsurance pool could work for cyclone claims: 1. It could agree to pay the first $? of a claim, or 2. It could agree to pay the excess of claims over a stipulated amount. I am pro the latter definition as then it wouldn’t be needed for small claims due to little major damage but only large claims due to excessive damage and in this way insurance companies would know the limitations of their exposure. Mutual: This is more difficult to understand. I think it is best to describe it as a type of company set up by the members, paid for by the members, for the benefit of the members for a particular reason – in this case cyclone insurance. A mutual is therefore owned by, and run for the benefit of its members - it has no external shareholders to pay dividends to. Any Mutual would have to work in conjunction with existing insurance companies and be sold through those companies as it would only offer cover for cyclones not for everyday losses, so any policy or claim would have to be processed by an existing insurance company. So a premium would be paid but shared between the mutual (for the cyclone cover) and the other insurance company. The Mutual would probably look at paying out the first $? Of a cyclone claim. The problem arises when an insurance company is already in the market, do they have to use the mutual and share their premiums or can they continue to offer their own full insurance and if they did would they be able to match the premiums or just loose the business? Mitigation: It is clear proper risk assessment needs to be undertaken so that risk is assessed rather than assumed. It is also very clear that mitigation needs to be looked at on a property by property basis. The cost of this mitigation has to be considered + something needs to be put into place to ensure that when mitigation has taken place it is recognised by insurance companies because the experience at the moment is that they are ignoring the reports – eg Magnetic Island. When I met with CGU and the NRMA I was told of CGU’s plan to do a mitigation report on all the properties they insure and I believe they have been able to reduce some premiums by 15%. However, when your insurance has gone up 400% you need a reduction of 75% and not just 15% to get back to the original premium. Timings: The interim report is due to be issued to the Federal Government at the end of July or close to – now, in fact. The Advisory Panel will not get to see it before it is issued to the Government but we will get to see it as soon as it is released to the public, and then I can make my comments and suggestions, as can anyone. After that, when everyone’s comments have been assessed the second stage is to cost the models put forward including: - the potential reduction in premiums; - the likely cost and risks to the Government balance sheet - the potential effect on the operation of the insurance and reinsurance markets in Northern Australia, in particular the likely effects on competition; and - how the role of the Government can be gradually reduced over time Craig Wilson added that the Taskforce should also examine the cost of doing nothing, which as far as he and I are concerned is not an option. The final report and recommendations are due out in November 2015. whitsundayinsurance@gmail.com