Direct government intervention to reduce insurance premiums in cyclone-hit northern Australia looks to be off the table because it could cost more than $5 billion in subsidies.
The Northern Australia Insurance Taskforce looked at whether a mutual insurer or reinsurance scheme could help homeowners whose premiums rose by as much as 80 per cent in eight years to 2013.
But the taskforce findings released on Friday said an average premium reduction of 10-15 per cent through either scheme could cost the federal government more than $5 billion over 10 years.
"Both options could possibly reduce premiums, but involved significant fiscal risk and any effect on premiums could not be considered sustainable," assistant treasurer Kelly O'Dwyer told an Insurance Council of Australia forum in Sydney on Friday.
Insurance losses due to cyclones in northern Australia are forecast to more than double from about $115 million per year to $285 million.
Average premiums in north Queensland are about one-and-a-half times those in Brisbane, and two-and-a-half times those in Melbourne and Sydney.
The report said neither a mutual insurer nor a reinsurance pool would reduce premiums if run along commercial lines, and that the government would therefore have to subsidise them.
There was a 10-20 per cent chance that subsidy would run to more than $2 billion, and a 5-10 per cent chance it could top $5 billion.
The taskforce instead called for a "multi-pronged approach" to encourage risk mitigation by residents and planners.
Ms O'Dwyer said residents can easily reduce the potential for claims, and could also be rewarded with lower premiums for assuming more risk through a larger excess on their policies.
"Small actions such as securing the garden shed, putting away the shade sail and storing outside furniture where it won't become a flying missile in a storm can all contribute to reducing damage," Ms O'Dwyer said.
But Ms O'Dwyer said insurers had been slow to reward residents for mitigating the risk of damage to property in the same way they reduced premiums for those who installed security measures to reduce the risk of theft.
Insurance Council of Australia chief executive Rob Whelan accepted the criticism but said that, with some cyclones powerful enough to destroy concrete buildings, insurers had to be convinced that mitigation measures would actually have an effect.
"At the end of the day, Queensland generates five times the level of claims than anywhere else in the country does," Mr Whelan said.
"If we don't price properly, we're not able to pay claims."
The government will formally respond to the taskforce findings on June 30.
