Reinsurance Pool legislation discussed at public hearing

Mar 8

Sure Insurance appeared at the public hearing of the Senate Committee on 8 March 2022 and delivered a compelling Opening Statement urging the Committee consider a No-Disadvantage safety net be included in the Pool legislation. See statement below:

Good afternoon Madam/Mr Chair & Committee Members,

Sure Insurance is pleased to appear as a witness and provide evidence at this Public Hearing. 

Firstly, I wish to provide the Committee with background advice of Sure Insurance. 

Sure Insurance: 

Sure Insurance is a specialist Queensland-based insurance business launched on 1 July 2019, providing household and residential strata insurance across regional, north and far north Queensland markets and is fully committed to addressing the insurance affordability ‘crisis’. 

We are a fully Queensland-based and owned operation backed by leading global insurer Liberty Mutual.      

Sure operates on key principles and values by putting Fairness first – we make sure that fairness informs every decision.

We cannot over emphasize at the outset that Sure is committed to supporting a government Reinsurance Pool that will deliver premium savings to householders, and a Pool that will not disadvantage any existing policyholders. 

Sure Insurance Household Premium Savings: 

Sure Insurance currently delivers an average annual household premium savings of over $1,900 per customer compared to our competitors. Importantly, ten percent (10%) of householders now insured with Sure previously held no insurance cover whatsoever. 

Sure – Specialist Regional Insurance Business: 

Sure risk rates properties based on the customer’s specific circumstances and those of the specific property. 

We ask questions about the individual property, not just the postcode.  We offer a range of discounts and rewards for customers – especially where customers have taken their own steps to reduce their risk for cyclone, flood and bushfire. 

Sure actively encourages property mitigation as a means to reduce premiums and supports related state and federal government resilience initiatives. 

We need to reiterate that Sure supports any government initiative that delivers equitable and fair premium relief to those that need it most. 

With this in-mind, I would now wish to move forward to specific relevant points concerning the Pool, making reference to key points in publicly available information released by the government and in submissions provided by Sure Insurance to the Taskforce during the consultation process. 

A key issue for Sure is the No-Disadvantage Test/Insurer participation: 

In our submissions we stressed a ’No-Disadvantage Test’ be applied to the Pool design. 

Let me explain this further.  The Pool requires mandatory insurer participation. We proposed that if an insurer for a particular property is able to charge less than the Pool price then they ought be allowed to do so and retain the risk rather than using the Pool – additionally insurers should also be prohibited from ever charging more than the Pool price.   Regrettably both of these safety nets have not been included in the Pool design. 

In Sure’s specific case, we estimate that a mandatory participation model, without such a no disadvantage test, will almost certainly deliver price rises for a large proportion of Sure’s tens of thousands of policyholders and their families, and for other insurers alike. 

The prospect of some Policyholders potentially being handed a non-negotiable price rise because of the Pool’s introduction is clearly not acceptable for Sure customers, and may potentially be viewed as a failure of government policy and its stated public commitment to insurance affordability.  

A potential fair solution is that insurers could use the Pool for a policyholder if the Pool is cheaper, otherwise, if the insurer is able to charge less than the Pool price then the policyholder should get the benefit of this– the policyholder wins either way by obtaining the lowest available premium and the Pool objectives are realised.  

The same point applies to the policy coverage that customers currently have versus what they hypothetically may have under the Pool.  

It also ensures that competition amongst insurers is maximised for the policyholder benefit – it also ensures that policyholders with low premiums due to for example long term loyalty discounts and multi product benefits are able to retain that benefit. 

We also raised a number of critical matters regarding insurer participation – most notably that insurers will be able to access the Pool and yet not provide Flood and/or Storm Surge cover as standard – in the current environment of monsoonal floods as well as events such as the Townsville Floods of 2019, and recent Maryborough floods, we find this decision impossible to understand especially given that the Pool would not cover these events.    

Premium Savings Concern: 

We do remain concerned regarding the implications of the publicly released numbers and the stated expected level of premium savings when considering the matters we have raised with respect to the application of a No-Disadvantage test.  

Sure Insurance, among other insurers, has raised concerns regarding these estimated savings. 

First some critical numbers – it has been publicly stated that the Pool will collect around $710m in cyclone premium per annum generating savings of $290m for around 880,000 policyholders.   That implies a current industry cyclone premium base per policy of $1136 and therefore a new pool premium of $806 and a policyholder saving of $330. 

As a comparison, Sure’s average cyclone premium component is $485 – this compares to the Pool number I mentioned of $806. 

The simple question we have is how will this not generate for some Sure and other insurer policyholders an unwelcome increase in their premium. 

Additionally, how do these numbers give confidence that other policyholders will receive a material enough reduction in their current high premiums. 

We believe real and material premium relief should rightly go to those that need it most, and those that need it most are those paying sometimes tens of thousands in premium. 

To complicate the matter further, the Pool will not cover all cyclone and related flood scenarios which creates a cover Gap.  On Sure’s modeling we believe that around 30% of total cyclone risk will still be covered directly by insurers and not covered by the Pool.   This means that insurers will still need to price and also buy reinsurance for cyclone risk in addition to the Pool.  This further adds to the policyholder cost and further erodes the chance of savings.  We fail to see how being compelled to buy two reinsurance covers can equate to policyholder savings. 

Closing: 

I trust this information assists the Committee in its deliberations moving forward. 

Thank you for your time and I of course invite questions from the committee.