Highlights of the 2022 pre-election Federal Budget and implications on insurance issues

As claims from current flooding events in South East Queensland and New South Wales continue to flow in, the national conversation has been focused on prevention and resilience strategies around natural disaster with some notable criticism for the lack of leadership shown in this area by the Australian government.

This latest natural disaster (Insurance catastrophe 221: SE Queensland and NSW Floods) is still being assessed, but current figures indicate $2.32b for the 168,000 claims notified so far. This is part of a pattern of increasing incidence and severity of natural disasters seen in Australia (see our previous article on this topic here) which has seen 5 separate extreme weather related insurance catastrophes declared over the past 12 months alone.

Natural disaster resilience is just one area the Insurance Council of Australia (ICA) has highlighted in their election platform report released in February – Building a more resilient Australia. The report outlines 12 policy areas that require reform and investment comprising of resultant collaboration between Insurers, policy makers and stakeholders around Australia.

Andrew Hall, CEO and Executive Director, ICA said:

“In an election year our simple message is this: in the face of worsening extreme weather the next Australian Government must boost investment in stronger homes and the local infrastructure that make communities more resilient. This means subsidies to improve the resilience of the nation’s homes and businesses to cyclone, flood and bushfire, as well as projects that protect the community, like levees, floodways, and prescribed burning. The Productivity Commission has recommended Commonwealth investment in this area should be in the order of $200 million a year, which is around double what is currently allocated.”

Another key area with implications for insurance includes cyber security. In their cyber risk platform, the ICA has called upon the next Australian Government to:

“Establish a whole-of government forum for stakeholders across government, the insurance industry and technology to collaborate on the policy settings that manage system risk and support good cyber security health for business.

Direct relevant government agencies, notably the Department of Industry, Science, Energy and Resources, to work with the technology sector to develop minimum security requirements and third-party certifications for software and hardware to reduce the vulnerability of business software and hardware to cyber-attacks, considering international best practice.

Collaborate with the insurance industry to facilitate improved cyber risk reporting by businesses, to help insurers identify risk mitigation opportunities for their customers and provide the most effective way of reducing cyber premium costs over time.”

Measures outlined in the budget have largely been welcomed by the ICA but the call for further and sustained funding to key areas remains. Their commentary on the budget includes this statement by Andrew Hall:

“The Insurance Council has long been calling for the level of investment in resilience measures to be increased, so funds confirmed in the Federal Budget are an important step in the right direction.

The funds identified for the northern rivers rebuild is needed to ensure that community can rebuild stronger homes and infrastructure in a way that makes them more resilient to future extreme weather events.

While we are pleased the Federal Government is heeding this important call to step up its funding in resilience measures, there are dozens of other communities in Australia that remain exposed and require similar assistance, and we look forward to working with all levels of Government to assist in resilience and mitigation efforts.

Insurers welcome additional investment in cyber-security and resilience related measures to better protect Australian from the impacts of extreme weather and cyber threats in the digital age. We look forward to working with the Government in these important areas of public policy.”

Among insurers, there has been some criticism of the budget focusing on recovery over proactive investment in future resilience and risk mitigation strategies. Allianz Australia Chief Corporate Affairs Officer Nicholas Scofield commented that spending on resilience will “clearly fall short” of what is needed. Saying:

“When it comes to improving Australia’s resilience and adaption to increasing extreme weather events caused by climate change, the Budget is disappointing”.

Taking a broader view of the budget, The Financial Review has described it as a “naked appeal to voters grappling with the rising cost of living” noting the $8.6b cost of living package which will see petrol prices reduced for 6 months and gives $10m in one-off tax rebates to low and middle income earners. Whether these strategies will prove effective at the ballot box remains to be seen with the next federal election called for May 21 2022.