The proportion of losses covered by insurance can be an important determinant of the size of government contingent liabilities. Australia has a comprehensive general insurance market; cover is available for the majority of natural hazard risks to residential and commercial property, although some high risk properties may face unaffordable insurance rates.
The 2010/11 Queensland floods revealed the significant underinsurance of flood risk in that state. Many households had mistakenly believed that overland flood coverage was included in their standard fire insurance policy, and therefore did not purchase additional protection against flood risk. Since that time, the insurance industry and governments have invested significantly in improving consumer understanding of available coverage. Those efforts, combined with the flooding experience, have led to a major increase in the purchase of flood coverage. Investments in flood mapping by the insurance industry have also led to a better understanding of risk and a more granular approach to risk-based pricing of flood insurance. These in turn have led to very high premiums for some households in high-risk areas. The government has considered different approaches to addressing affordability concerns, most recently through a Northern Queensland Premium Affordability Task Force (Commonwealth of Australia, 2015); but no specific measures have been implemented thus far.
Commercial policies are generally “all risk”, covering damages and losses from all types of natural hazards. Insurance availability and take-up is high, meaning that underinsurance among Australian businesses is unlikely.
The NDRRA may provide reimbursements for limited assistance to individuals for some losses granted by subnational governments, such as for debris clearance and replacement of household contents (e.g. white goods), although this is rare. Some assistance may also be provided to businesses, although this normally takes the form of subsidised loans. When such assistance is granted, it does not take into account whether coverage was provided (or available) through insurance for property damage or business interruption/ additional expenses. Government officials perceive the assistance to individuals and businesses as providing for immediate needs in complement to, or as a bridge to any insurance payments.
In addition to natural hazard insurance for households and the private sector, the public assets of more than 160 Australian government entities (including all departments of state) are insured through Comcover, the Australian government’s general insurance fund. Comcover covers only those entities that are within the general government sector and subject to the Public Governance, Performance and Accountability Act 2013 (i.e. Fund Members). Managed by the Department of Finance, Comcover keeps a register of insured public assets that are declared by each Fund Member, and provides cover for all general insurable risks including natural hazards (but excluding workers’ compensation, which is the responsibility of Comcare). Comcover seeks information from Fund Members on assets to be covered by the fund and charges property premiums based on the sum insured and past claims experience, while taking into account the value of the property premium pool for the entire fund. Many states and territories also have self-managed funds or other public insurance arrangements for public assets under their responsibility. In some states and territories premiums are risk based, and reinsurance is secured to transfer some of the exposure to private markets.