Review comes amid concern about the availability and affordability of some categories of insurance cover
The Insurance Council of Australia (ICA) is undertaking a review of the insurance sector’s options for reforms to improve its contribution to national economic recovery and growth, amid concern from insurers, stakeholders and the community about the availability and affordability of some categories of cover for certain groups of customers.
The aim of this review, which is being led by former insurance executive and regulator John Trowbridge in collaboration with leading economist Michael Blythe, is to provide a summary of practical solutions to problems that have been challenging sectors of the economy for a decade or more.
ICA CEO Andrew Hall said insurance exists to transfer risk from consumers and businesses in a manner that enables them to pursue their affairs confident they will receive support to recover financially from any insured risks.
“As our nation navigates the COVID economic recovery, it’s important to understand that nothing can happen without insurance providing essential coverage for insurable risks,” Hall said.
“The private insurance market performs this risk transfer process successfully on the whole, however the industry is keen to examine where it can do more to manage issues of affordability or availability.
“In many of these cases, insurers themselves are also under pressure to provide a profitable product, so solutions are often difficult to determine.
“While changes in availability or affordability of insurance send a price signal about the risks that are present, we know that where there are acute issues we need to find ways forward so economic prosperity is not hindered or risk shifted back on those without the capacity to properly manage it.”
Trowbridge said that while the issues around affordability and availability were well known, there has been a lack of agreement on potential solutions.
“As has been recognised by the recent Royal Commission into National Natural Disaster Arrangements, the ACCC Northern Australia Insurance Inquiry, and Australian Small Business and Family Enterprise Ombudsman’s report, some of these issues can be addressed with industry initiatives or regulatory reforms, but some may be beyond the ability of the private insurance industry to resolve on its own,” he added.
In November, in an important test case judgment, the New South Wales (NSW) Court of Appeal rejected the industry’s argument that policies should not cover COVID-19 pandemic-related losses. The test case was initiated by the Australian Financial Complaints Authority (AFCA) and the ICA.
And in May, the ICA engaged actuarial consultancy Finity on the insurability of future pandemics. A pandemic risk insurance pool is understood to be one of the options currently being explored.
ICA chief executive Rob Whelan told a parlimentary committee that pandemics were generally excluded from insurance contracts due to the “sheer size” of the exposure.