The government must step in to fix North Queensland's strata insurance crisis

GUEST OBSERVATION

While Australian insurers are making hundreds of millions of dollars in profits, many North Queensland retirees are struggling to pay their strata insurance premiums. Locals say that insurance premiums for strata title unit buildings have risen 200-800% since tropical Cyclone Yasi. Many retirees are struggling to remain in their homes. 

The Insurance Council of Australia (ICA) recently put out a media release to stress that insurers aren't gouging their customers and that the pricing of insurance in Northern Queensland is reasonable. They need to take a look at the Change.com petition 'Help North Queenslanders get fair and affordable insurance premiums'. On it they will find 83 year old retirees complaining that they cannot pay their bills as a result of insurance premium increases, others complain of strata insurance premiums quadrupling to $32,000 per annum and in one building 30% of owners say they are unable to pay the levies due to increased premiums.

To add insult to injury, the ICA also wants international competitors, who are expected to offer cheaper cover, to be locked out of the North Queensland market. Perhaps we should expect as much from an industry association committed to protecting its members’ financial interests. It takes guts to argue for maintaining the status quo but the ICA is defending an industry that has been condemned in the US for using unethical strategies to take advantage of their trusting clients for over 20 years now.

When a catastrophe hits, home owners and businesses expect their insurer to deliver on their promise to help them get back on their feet after a loss. Unfortunately most Australians would be unaware that since the 1990s, insurers have implemented strategies to maximise their profits by consciously deterring their customers from obtaining their legitimate entitlements. They do this by deliberately "low-balling" or discounting their clients’ claims or denying their insurance claims altogether.

These strategies, developed by professional management consultants, came to light in the US case of Hager v Allstate Insurance. Lawyers for Ms Hager alleged that Allstate Insurance offered claimants a simple choice when they made a claim: they could chose a gentle hand by complying and accepting a low ball offer or if they didn’t want to accept the offer, they could expect a blow from a fisted glove, in the form of years of protracted and expensive litigation.

This miserable strategy relies on the fact that most inexperienced claimants will drop off if their claims are denied or discounted as they do not have access to advice or have the resources to maintain a battle with their insurer.

So if you accept a pittance, then your claim will be processed promptly, otherwise you may fight for years. Here, you are likely to need lawyers to fight for what is rightfully yours.

It’s a simple plan that makes perfect sense to management consultants, but it goes against the principles of trust and faith upon which insurance was once based. Today, instead of paying out in good faith, insurance companies want to hang on to your money as long as they can so they can earn more profit on it.

The problem for retirees in North Queensland and for claimants around the nation is that the insurance industry is an extremely effective lobbyist and it has been extremely successful in looking after its own interests, often at the expense of its customers. Apart from employing lawyers to enforce their rights, there are few legislative protections for claimants.

Queenslanders deserve better than this. Because strata owners are forced to insure their property under state law, both state and federal governments have a duty to legislate to protect their citizens.

The proposal of the Commonwealth government to open up the market for strata insurance to appropriately qualified overseas insurers is a good one. But in addition, the federal government should monitor premium increases and demand that insurers explain why areas that have not been affected previously by flood or cyclone are being subjected to the massive increases in premiums.

George Newhouse is a leading human rights advocate and disaster insurance recovery department manager with Shine Lawyers.

George was the Labor Party candidate for the seat of Wentworth at the 2007 federal election.