Address to Insurance Council of Australia Canberra Cocktail Reception

22 August 2012






Good evening.

It's good to be here again with you lot. We drank deep to good effects last year and it's been a satisfactory twelve months since then.

I’ve been told by one of my staff that Bruce Springsteen’s vocal chords are evidently insured today for $6 million.

If we were to brief the Treasurer he’d probably regard that as one of the most alarming cases of under insurance going round.

If we were to check with Craig Emerson we’d probably find his premium payments are considerably lower than Bruce’s.

But we won’t check – we’ll just smile together over a drink.

Because together we’ve worked through the effects on you and your customers of the floods and the fires, and it wasn't easy, but we sorted it.

Flood insurance is now more abundantly available than ever before.  This is a very good thing.

We've now got the General Insurance Code of Practice. And the flood risk information portal. 

And an actual definition of what a flood is -- not quite yet in place, but coming soon.

There's a Draft Key Facts Sheet for you to study.  And we're looking into Strata Title Insurance.

Tonight, I want to say some things to you in more detail...

Strengthening of the Code of Practice

First, there's the strengthening of the industry’s Code of Practice. 

Claims resulting from natural disasters will now be assessed in the same timeframe as other claims. 

This will mean it happens faster, as of course it has to.

It will put your staff under pressure, but pressure is what insurance is made of, what it is there to deal with. It will make right some of the wrongs of the Queensland floods last year.

You have a highly skilled and professional workforce. Your staff are resilient and resourceful, and I know they will cope with these changes.

The Code speaks of 'enhanced transparency and disclosure'.  It means that if we say it, we mean it, and we pay up if we don't.

Some of you have wanted changes to the code.  And fair enough.  We have listened carefully.

We established the flood risk information portal at a cost of around $12 million and drew maps, and drew up national guidelines.

Geoscience Australia is currently collating flood information in a database which will be soon a ‘National Library’ of flood risk narrative and past strategies that worked, and those that did not.

In our talks we identified the need for national consistency in the measurement of how bad it gets in flood-time and how to get around it, to -- as it were -- escape the deluge.

National guidelines are going to be developed about what is known and how best to find out more of what must be known. 

We will know more and more over time, as our library of anecdote and strategy gets bigger.

The Government’s intention is that this portal be a valuable resource not only for insurers in identifying and pricing flood risk, but also for land use planners and for emergency management.

Standard definition of flood

The standard definition of flood, as you all know, is one thought up by the insurance industry itself.  And we pat you on the back.

The regulations around it are now in place and the two year transition period has begun. 

For consumers, it will mean that people living next to each other aren’t treated differently because their policies have different wording, different adjectives and nouns. And it will mean that at a press of a button you can see what insurance companies are offering better than other insurance companies.

A number of insurers have already adopted the standard definition and I encourage other insurers to do so fast, or I'll have your NBN broadband slowed to Commodore 64 speeds... (I’m kidding).


Key Facts Sheet

 A number of important steps have also been taken in the Key Facts Sheet for home building and home contents insurance policies.

Responses to a February discussion paper helped us in the development of a prototype which was consumer tested.  Draft regulations have now been released for comment.  The Government wants any feedback you may have; everything you say we will consider.

When introduced, the Key Facts Sheet will make it much clearer to consumers what is covered and what is not covered.  And of course who best covers what among competing insurance entities.

The release of the draft is yet another step in the process of making transparent the whole process, the whole industry.

When the 2010 and 2011 floods struck, many policy holders didn't know, didn't suspect that they weren't covered for flood. 

Very importantly, this document will prevent that happening in the future.

Further, the flood cover opt out arrangements offered by some insurers will force their customers to actively consider purchasing flood cover.  Those consumers who decide against the purchase should be in no doubt that they lack such cover.

Mandatory flood cover with opt-out arrangements

There is an obvious need to try and ensure that as many consumers as possible who live under flood risk, in the catchment areas, choose to purchase flood cover. 

This necessitates not only that they think about it, but that there is an option -- in, out -- for them to consider.

For these reasons, in November 2011 the Government commenced consultations on a proposal to require all insurers to offer flood cover to their customers, while allowing insurers to decide whether to permit their customers to opt-out of purchasing this cover.

But while this was in process, insurers have continued to work steadily to improve the availability of flood cover. 

In 2010, before the Queensland floods, 54 percent of home and content policies purchased covered flood.  By the end of 2011, the proportion of policies purchased that included flood cover had grown to 81 percent.  This trend is continuing, which is very encouraging.

But, but - and this is a but - I do have some concerns about the manner in which some insurers are choosing to offer flood cover. 

That is, to provide it automatically, without giving consumers the ability to opt out. 

Should this become the standard for the industry my concern is that those homeowners whose homes are at very high flood risk may be forced to cancel their insurance and become uninsured because the premium is simply unaffordable. 

I understand that this will only potentially be the case for a small proportion of homeowners.  But for them, for those unlucky ones, the choice is almost impossible.

And you guys really, and I say this quietly, you guys really should adopt a sensible approach to flood cover. 

At a minimum, a variety of products should be available so that consumers have the choice when it comes to it, maybe the biggest choice they will make in their lifetime.

Ask anyone in Queensland who found, last year, too late, they'd made the wrong choice, as their old lives washed away and left them destitute of a new one.

The Government will continue to closely monitor market developments in this area. 

Natural Disaster Insurance Review

We also, of course, have looked into the affordability of flood insurance. 

The Productivity Commission’s report on Barriers to Effective Climate Change Adaptation recommended that governments should not subsidise premiums.   They believed that subsidies would impose a barrier to effective adaptation to climate change.

Given this, the Government will also await the Commission’s final report before giving further consideration to the recommendation for a flood reinsurance facility.

Affordability of strata title insurance

Continuing the theme of upcoming reports, I would also like to briefly go to strata title insurance.

This was recently the subject of a Parliamentary Committee Inquiry which was requested by the Government in light of widespread reports of steep premium increases following recent natural disasters.

The Committee received evidence of significant premium increases and recommended that their underlying causes be identified before any course of action is determined.

Accordingly, in its response to this recommendation, we announced in June that we would call on the Australian Government Actuary to undertake a rigorous quantitative investigation into this matter.

I understand these probings are well underway and I want to thank some of you here this evening for your help in this inquiry. 

The considerable amount of data that the insurers have agreed to provide will enable a thorough analysis of the facts.  The Actuary is to report to the Government by the end of next month.

Insurance for Seniors

All of what I have spoken of here has been in train for some time. 

So I would like to turn now to some things that have been raised with me more recently. 

I have heard out a number of representations about the difficulties seniors are experiencing in accessing travel insurance. 

I consider this to be a tremendously important issue given we are living longer and associated increasing trend for seniors to travel. 

I recognise that products specifically tailored for seniors are available from a number of insurers.  However, it appears that many seniors are having difficulty in finding these products.

I recently chaired a roundtable discussion with stakeholders on the topic. 

There was a general view in the room that there is a need to better educate seniors about the availability of tailored insurance products. 

I'm glad to report that stakeholders have agreed to examine this issue and come up with a strategy for doing so.

The Government is also currently examining similar access issues in relation to income protection insurance, which is an issue for the life insurance industry.  This too, highlights new challenges for the insurance industry emerging as a result of the ageing population.

Reintroduction of the Insurance Contracts Amendment Bill 2010

Finally, I am pleased to be able to inform you that the Gillard Government is committed to reintroducing the measures contained in the Insurance Contracts Amendment Bill 2010 - at last - into Parliament.

The Bill includes a number of reforms long overdue.  For example, it will remove restrictions on the electronic communication of documents, including Product Disclosure Statements, between insurers and consumers. 

Again I want to thank the industry for working positively and constructively with consumer groups to get a good outcome on these matters.

We will bring the Bill back into Parliament as soon as possible.


So to wrap up, a lot of progress has been made since the floods of 2010 and 2011.

And it's good to make progress but there's still a bit to be done.

I’m reminded of a gag...

An actuary, an underwriter, and an insurance salesperson are riding in a car.

The salesperson has his foot on the gas, the underwriter has his foot on the brake, and the actuary is looking out the back window telling them where to go.

But it’s to the future we need to look of course.

I look forward to continuing to work productively with the insurance industry as we talk of other things, including strata title insurance and insurance for Senior Australians.

I am sure that in dealing with these things, the industry will prove to be just as helpful, constructive and pragmatic as it has been in dealing with flood insurance.

You're all potentially wonderful people, but there's a few miles to go yet.

Thank you all – here’s to gathering in the nation’s capital.