Report rejects subsidised premiums in flood zones

Peter Hannam in the Age (Australia): A Productivity Commission report into climate change adaptation has argued against subsidised premiums for homeowners living in flood-prone regions, a finding that drew praise from insurers and the government but disappointed the head of a review into disaster insurance.

The commission argued underwriting risks would be costly, as households would have less incentive to reduce exposure to risk, and might not help households most in need, a view the government supported.

Insurance Council of Australia chief executive Rob Whelan said insurers welcomed the commission's report ''which recognises the importance of the price signal that insurance sends about the need to adapt and reduce risk to ordinary households and businesses''. ''Risk has to be priced appropriately,'' Mr Whelan said. Any effort to subsidise premiums ''would mute that price signal''.

However, John Trowbridge, who chaired the 2011 Natural Disaster Insurance Review, said the commission's findings, and the government's response, mean the issue of high cost of insurance for those at risk from flooding had been left unresolved. ''The affordability problem has not been dealt with,'' Mr Trowbridge said.

Insurers and premium holders were keen to see how the report would address the soaring cost of insurance for flood-prone regions…

Thomson River in flood at Jundah, Queensland, 1950