Budget provides for NQ insurance market relief measures
Budget time always shows where government priorities lie and in the past there have been great injections made into the property and infrastructure sector albeit the occasional initiatives that lead to cost increases for home owners.
The government’s announcement to get back to surplus within the next few years has been raising a lot of eyebrows and fears for certain sectors. Luckily, the property sector is important to the growth of the nation and therefore receiving ongoing support. The federal budget indeed shows some cuts in expenditure that will negatively impact on strata title lot owner’s pockets as well as those ones planning to buy (for example the First Home Saver Accounts Scheme is being abolished).
However, there are still $11.6 billion provided for the growth of infrastructure and, interestingly, we have found that there are some initiatives incorporated in the budget that are actually still up for negotiation or so we thought.
Budget allowance has been provided for very specific support of the North Queensland insurance market that has been suffering from high premiums in the past few years due to natural disasters. The budget directly provides $12.5 million over three years from 2014-15 to provide “grants to bodies corporate to undertake engineering assessments of strata-title properties in North Queensland”. This very clear budget item stems from a just recently published discussion paper named Addressing the high cost of home and strata title insurance in North Queensland that was only released by the federal finance minister and acting assistant treasurer Mathias Cormann one week before the budget.
While the questions raised in the paper are varied and gauge general views on how the market could be improved in North Queensland, there are three initiatives proposed that the minister hopes to receive feedback on:
– a tool helping consumers to compare insurance products by developing an insurance information and comparison website (or an insurance ‘aggregator’)
– promoting resilience of strata title buildings by facilitating engineering assessments of strata title properties in North Queensland; and
– expanding North Queensland insurance markets by encouraging participation by foreign insurers.
The engineering assessments are supposed to identify risks that can be mitigated. The assessments will provide better information to insurers that will enable them to set premiums that more accurately reflect individual property risks. The assessments will also help residents of strata title properties to be fully aware of the risks to their properties from natural disasters.
This aims to provide bodies corporate with an opportunity to take necessary action to mitigate those risks and reduce their risk assessment by insurers and ultimately reduce insurance premiums in some cases.
The costs associated with this measure and the related expense measure titled Addressing Insurance Costs in North Queensland – establishment of an insurance comparison website – will be offset by savings of $72.2 million over two years from 2013-14 from the cessation of the National Insurance Affordability Initiative.
Somewhat pre-empting the outcome of the discussion paper, the budget also reflects a commitment to provide funding over four years (including a capital component) to the Department of the Treasury to develop an insurance comparison website on strata title and home building and contents insurance offerings in North Queensland. Insurance comparison sites could reduce search and transaction costs for consumers and allow consumers to make more informed decisions about their insurance purchase. The expenditure for this measure hasn’t been revealed due to commercial sensitivity.
These two initiatives have the ability to help the North Queensland strata insurance market back on its feet after a handful of tough and disappointing negative experiences. The discussion paper, in fact, follows the 2011/12 federal enquiry into the affordability of residential strata insurance which at the time resulted in a delay of the increase in stamp duty in order to relieve strata title owners from high insurance costs. As we know, stamp duty was raised from 7.5 per cent to 9 per cent in July 2013 and has not helped the North Queensland property market at all.
There is no choice for strata title property owners with the legislation clearly stating the need to insure common property. Hence it is a relief to see that the government has listened to our and other stakeholder feedback to send positive signals and actively help.
It is comforting to know that the budget already factors these positive new initiatives in – now the question is how far this will get us and how long it will take to implement these proposed measures.
