The proposed state-owned insurer TasInsure, to be set up by the Tasmanian government, would fall short of addressing the underlying drivers of insurance costs fully and expose Tasmanian taxpayers to significant financial losses, according to a new economic analysis.
The independent analysis conducted by Lateral Economics undertaken for the Insurance Council of Australia (ICA) has revealed that the proposed insurer would require establishment costs of A$150m ($105m) and prudential capital requirements of up to A$510m and run annual operating deficits of up to A$13m.
A media release issued by ICA said the operating deficits of the proposed insurer would exhaust the Motor Accidents Insurance Board’s available reserves within 15 years, requiring taxpayer-funded top-ups.
The ICA, however, welcomed the Tasmanian Government's focus on insurance affordability. It has outlined several alternative solutions that would deliver greater benefits while minimising taxpayers' exposure to financial risk.
1. Tax reform that puts money back in pockets: Reform the A$260m in annual state insurance taxes, which add 21% to household premiums and up to 48% for businesses.
2. Strategic resilience investment: Partner with the Federal Government on flood and bushfire mitigation projects through the A$1bn Disaster Ready Fund, focusing on high-risk communities.
3. Modernise outdated laws: Undertake a comprehensive review of civil liability settings to improve insurance affordability for small businesses, as well as not-for-profit organisations and community groups.
The ICA said, “Current insurance affordability challenges are being driven by escalating extreme weather and persistent, high inflation, particularly in the building and construction sector, with more properties needing rebuilding more often and at a higher cost than ever before.”
Around 98% of Tasmania is bushfire-prone and property values represent 278% of the state's output, which is the highest ratio in Australia. This gives Tasmania a uniquely high property risk profile and underlines the need for evidence-based solutions that put downward pressure on the drivers of insurance costs without transferring risk from a well-functioning private market onto Tasmanian taxpayers.
ICA said the insurers are committed to working with the Government to implement solutions that address the underlying drivers of insurance costs.
ICA CEO Andrew Hall said, “The question is not whether action is needed, it's about finding the most effective solutions that will genuinely help Tasmanians over the long term. The Launceston flood levee is proof that resilience works – it prevented A$216m in losses during the 2016 floods and generates annual premium savings of up to A$14m. This is why we need solutions that reduce risk, not just transfer it.
“The Lateral Economics analysis shows TasInsure would expose taxpayers to losses exceeding hundreds of millions of dollars, while doing nothing to address the underlying risk. Instead, let's invest in resilience that delivers 10-fold returns, remove unfair state taxes, and modernise laws that are costing small businesses.”
Mr Hall added, “The insurance industry is ready to work constructively with the Government and community on solutions that will genuinely help Tasmanian families and businesses afford insurance over the long term.”