Cyclone Carlos strikes Karratha in the Pilbara, February 2011

26 July 2011 – Out of control insurance premiums are threatening the viability of existing medium and high density communities in cyclone-prone areas of northern Australia. Strata Community Australia chief executive Mark Lever says they are  an urgent signal for a government backed insurance fund.

In comments that foreshadow problems from climate change impacts Mr Lever told The Fifth Estate premiums of between $3000 and $4000 per unit simply made these properties uneconomic as an investment and unaffordable for residents, many of whom are on fixed incomes such as retirees.

“We believe government must play a role in returning the insurance market for strata communities to more normal levels with targeted measures aimed at providing a layer of reinsurance for defined severe weather events within defined high risk zones,” Mr Lever said.

“We call on the state and federal governments to work together to establish a government backed insurance fund for those living in disaster prone areas. This is the only solution that is equitable.”

New development was also under serious threat, particularly in the Pilbara where the WA Government has committed hundreds of millions to dollars to support a growth plan largely centred around apartment developments in Karratha and Port Headland.

“Our advice is that the current specialised insurance market simply does not have the capacity to underwrite development on this scale at any price,” Mr Lever said.

“The capacity of government to change the market dynamic is evidenced by the experience in Darwin where the Territory Insurance Office has a specific mandate to provide cover and does so at commercial but significantly more affordable rates than Queensland and WA.

This would  take pressure off insurers’ capital adequacy ratios and reinsurance costs and thus increase the market’s capacity to cover more generic risks at more affordable rates, he said.

Mr  Lever said the organisation had made submissions to the Natural Disaster Insurance Review and the Federal Government’s inquiry into the operation of the insurance industry during disaster events.

Apartment owners in Far North Queensland are facing premium increases of up to 400 per cent. By law they must have insurance cover unlike house owners.

“If ordinary detached houses faced premium increase like these there would be massive community outrage,” Mr Lever said.

Mark Lever

The main points in the submission to both inquiries are:

  • Any program to support access and availability to disaster insurance should include the strata and community title sector on equitable terms relative to any assistance to households in detached properties, while recognising the different characteristics of this market, and
  • Such a program should not be risk-specific but should extend assistance to a range of scenarios where market failure creates access and affordability barriers to insurance against extreme weather events.

“Our focus is on ensuring the interests of apartment owners and tenants are represented before both these inquiries and that they are treated equally with detached house owners,” Mr Lever said.

“ Often the strata and community title industry is overlooked by governments and policy makers as it falls into the too hard basket.”

Strata Community Australia was launched earlier this month.  It was formerly known as the National Community Titles Institute and has now been rebranded into a more cohesive national structure with a new constitution, Mr Lever said.

The national brand brings together its members under one umbrella – the Institute of Strata Title Management (NSW), Community Titles Institute of Queensland, Owners Corporation Victoria, Community Titles Institute of South Australia and Strata Titles Institute of  WA.

There are about two million strata and community title lots in 270,000 schemes across Australia. According to the 2006 Census, 22.5 per cent of Australian households were in medium and high density dwellings.SCA affiliates have some 2500 member companies and individuals.

Mark Lever is a former journalist and insurance executive who was hired by the then National Community Titles Institute in Match 2010 to lead the integration of the six state and territory strata services industry bodies.

See the SCA submissions