RACQ opening statement to the Cyclone Reinsurance Pool public hearing

My name is David Carter, and I am the Managing Director and Group CEO of RACQ, a mutual with over 1.7 million members. I am joined today by Joshua Cooney, who is our General Manager Advocacy.

You may be aware that RACQ has announced a partnership with IAG subject to regulatory approvals. In the meantime, RACQ is continuing to manage our insurance business, our policies and claims as normal.

RACQ will remain strongly committed to advocating for affordable and accessible insurance and supporting efforts to negate and lessen the impacts of severe weather that is synonymous with Queensland.

In fact, RACQ will soon release our Federal Election Priorities Report which calls for the next Federal Government to act on removing the double tax on insurance, delivering risk reducing infrastructure, supporting more resilient homes, and improving land use planning and construction codes. If these measures are ignored then more households will find insurance unaffordable, leaving them unable to financially protect their homes or access a home loan.

RACQ has not changed our position on the Pool since we last spoke with you last April. We supported a Pool when it was announced by the previous Government and it must be said it has delivered some benefits. When we joined, the Pool delivered premium relief through reduced reinsurance totalling approximately $43 million across our home portfolio. We have honoured our commitment to pass through the exact ARPC premium for each household. However, we maintain the Pool could have been a lot better than what was ultimately legislated.

RACQ has continued to support a well-designed Pool as one part of this broader package. Our previous recommendations to the Committee remain unchanged and include:

1. The policy parameter of budget-neutrality that was imposed on the Pool should be challenged, and opportunities for subsidisation should be explored.
2. The Pool should be expanded to at least provide cover for all flood damage caused by cyclone.
3. Replace the existing 48-hour “Claims Period” with seven days – to align with global reinsurance terms.
4. Expand the Pool to also cover Motor Insurance.

Post implementation, the challenging fact remains that north Queensland continues to pay higher premiums and higher tax (GST and stamp duty) for a lower sum insured compared to the whole of Queensland.

As of 31 December 2024, our average insurance premium in north Queensland is $2,839 for a sum insured of $517,993, and tax of $565. This compares to the whole of Queensland average of $1,878 for an average sum insured of $644,986 and tax of $374. Northern Queensland is paying 50% more on premiums, being charged higher taxes, for a lower sum insured policy

This has not materially changed since we last spoke with you in April 2024, and the figures we presented were similar.

The Committee may remember that RACQ stated that the Pool would not achieve the policy objective of improving insurance affordability in cyclone prone areas due to its design.

The Pool seems to only be having a meaningful effect on people living in absolute high-risk areas, which the ARPC considers to be the highest 5% of cyclone risk in Northern Australia – based on our reading of the ACCC’s latest report last September.

RACQ’s earlier submissions on the Pool have highlighted that as designed, one in two cyclones over the preceding 40 years would not be substantially covered by the Pool. Tropical Cyclones Jasper and Kirrily both crossed the far north Queensland coastline, and one in two of those cyclones was not substantially covered by the Pool.

We are still required to price for cyclone-related damage that is not covered by the Pool. For Jasper this is 68% of total claims. Our reinsurers – who we are engaging this quarter for our next renewal - are pricing for this friction and risk. Reducing friction, and reducing risk, will impact premiums in North Queensland.

We understand that the Pool is not the only government lever to improve insurance affordability and accessibility in northern Australia and in fact high-risk areas across Australia more generally.

The preferred course remains eliminating the social and economic cost of flooding by taking as much risk out of the system as possible. Progress by all levels of government on prevention and resilience has been inadequate.

We are closely aligned with the ICA and the rest of industry on this issue as well as the need to address the double tax on insurance. We await the outcomes of the Hazard Insurance Partnership and the Taskforce on Insurance Affordability and Accessibility which have been tasked with some of these challenges.