Insurance products need to evolve to cover all Australians

This means that, like after other disasters, most householders affected by the recent floods who have insurance cover are still likely to be left substantially out of pocket even after their insurance claim is paid.  If the insurance industry is serious about fixing the under-insurance issue, more insurers need to move quickly to introduce full replacement policies.   

The industry’s current objections to a national disaster insurance scheme seem to echo some of these themes, with complaints that such a scheme would operate in competition with insurance companies and reduce the incentive for households to self-insure.  At the same time, the insurance industry tell us that insurance cover for floods and cyclones is becoming increasingly scarce and premiums will continue to rise – possibly to the point where they risk becoming unaffordable for ordinary consumers.  We've gotten so used to these arguments that it almost seems acceptable to expect the government and the public to provide a level of protection to insurers’ business instead of the other way round.

The industry and the public might be better served by taking a look at the real reasons why people don’t insure.  The experience of the Black Saturday bushfires was that the majority of people who owned their homes were insured.  People who had no insurance cover were tenants, asset-rich income-poor retirees and lower income households - and this trend has been backed up by insurance industry research.  For some, the annual or monthly premium is prohibitive.  For others, the value of their contents are below the minimum cover that must be paid for under most contents cover policies.  Only recently have a handful of renter insurance policies entered the market.

We also need to counter the insurance industry's favourite complaint, that state taxes on insurance are a major contributor to non-insurance. Whether or not these taxes are economically efficient, they aren't the reason why low income families don't insure.  Again the industry's own research shows that these costs affect the decisions of, at best, a marginal number of consumers.  People who can afford to insure do, with or without the additional cost of state taxes and levies, and lower income families don't.

The solution to non-insurance, which primarily affects these sorts of households, requires very different responses.  For example, insurers need to develop products better suited to these households' situation and offer more flexible and easier to budget fortnightly and Centrepay payment options.  These would be welcome moves and more tasteful than calling in an insensitive manner for other forms of disaster assistance to be removed.