Regarding Richard Farmer’s chunky bits (Crikey, yesterday, item 11), Farmer seems a little confused about disaster insurance if his small item on the flood levy is anything to go by.
I was particularly puzzled by the unsubstantiated claim that my “insure-at-all-costs approach (his words, not mine) would mean higher total cost to taxpayers than the current government self-insurance system.” How, by any sensible reckoning, can he make that claim?
For a start, Queensland is not “self-insured”. If it was, it wouldn’t need $5.8 billion from Commonwealth taxpayers. There is another term for Queensland’s so-called “self-insurance”, Richard. It’s called “not having insurance”. Queensland currently has a fund of about $700 million, which is well short of the almost $8 billion it would require if it were not for the federal government’s funding of $5.8 billion, leaving Queensland to fund only $2 billion given the current federal/state disaster relief arrangements that splits a recovery bill 75-25 respectively. And the problem with the current arrangements is that 75-25 split applies regardless of whether a state has insurance or not.
Victoria also got flooded, but because it has insurance, the cost to the taxpayer will be a fraction of what it would have been had the Victorian government not sensibly taken out disaster coverage. Premier Bligh claimed on ABC TV’s Q&A last week that disaster insurance was not available for Queensland. It’s a strange thing to say given that insurance was available to Queensland.
A decade ago, Queensland was offered multibillion dollar disaster insurance for its infrastructure, including roads, for two events per year. The cost was less than $50 million a year, but ultimately the Queensland government decided to gamble all our money. We lost. The Queensland government has argued disaster insurance didn’t represent good value for money. The question is, who for?
It might be cheaper for Queensland to gamble with federal money, but it has left Australian taxpayers with a repair bill that is billions of dollars more than it needed to be. Sure, Queensland treasury gets to save $50 million a year. But now we have a situation where the federal taxpayer has to find 120 times that amount to honour the ludicrous state and federal funding arrangements. And when you look into those arrangements, the deal gets even sweeter for uninsured Queensland, and a lot worse for the responsible governments that do have disaster insurance such as Victoria, New South Wales, South Australia, West Australia and the ACT. That’s because under GST arrangements Queensland gets up to 80 cents in the dollar back of that 25% share it has to pay through increased GST revenue.
So state governments that took out insurance lose GST money in order to prop up a state government that didn’t bother to take out insurance. Do Richard and the Queensland government know something about insurance that the rest of us don’t know? Or does it just come down to the fact that under the current arrangements, the feds are required to write out a blank cheque to states and territories even if they refuse to do the right thing?
Good heavens! Maybe Xenophon has morphed into Steve Fielding. That piece is certainly Fieldingesque in its ignorance and stupidity.
Fantastic work Nick Xenophon you can always be trusted to be the educated often lone voice in the room. Farmers piece stunded me and can only be described as a total insult to the years of hard work you have put into your political work for both a state and now federal government. I would seriously like to hear an answer about WHY QLD can get away with not being insured and still getting handouts?
Now there is also the electoral politics of it all. IF this had been a State that was not essential for the ALP to hold on to Federal power would the money be flowing from the other States? If the ALP Bligh Gov was not in the toilet and due to sink at the next election would the Federal ALP gov money flow north?
SA has had all of its roads in the mid north of the State washed away after cyclone Yasi and SA will have federal funds taken away.
The lack of framework in place that you have outlined to ensure this can not happen again has resulted in me currently being against the flood levy. Thank you.
Mr squid, anything I would like to say about your comment could not legally be published but to compare Nick X to Fielding…don’t make me lol.
Hang on. Something cannot be correct with all those assertions.
[A decade ago, Queensland was offered multibillion dollar disaster insurance for its infrastructure, including roads, for two events per year. The cost was less than $50 million a year…]
This seems highly unlikely.
First, consider that there have at least three billion dollar disasters (two cyclones, one massive flood) and some smaller ones (one would have to gamble that those smaller ones do not use up the quota before the big ones, in any calendar year), and we are expected to believe the insurance companies would continue to provide such insurance at $50M (one twentieth of one billion dollars)? And aren’t any such payouts likely to have a cap?
Second, was Premier Bligh being economical with the truth when she claimed that NSW insurance also excluded roads? And that because Queensland is a much bigger state and is much more prone to these floods and hurricanes than any other state, the road issue is even more expensive (and unlikely to be insurable at sensible rates).
Third, what are the figures for the Victorian case cited (below). Again Bligh claimed a very high proportion of the state’s repair bill is in roads and bridges (90% by memory). Is that correct (for Qld) and indeed such damage in Victoria may be vastly less, and less likely?
[Victoria also got flooded, but because it has insurance, the cost to the taxpayer will be a fraction of what it would have been had the Victorian government not sensibly taken out disaster coverage. ]
With respect Senator, rubbish.
In the long run, where risk is correctly priced, insurance always costs more than going bare (Queensland) or self-insuring. That’s because insurance companies are for-profit businesses with overheads to fund. Their profit come from the insured – directly as underwriting profit and indirectly as investment income foregone. So does their overhead cost.
There are only two situations where purchasing insurance makes sense:
1. When you know you can’t stand the loss. In the case of the State of Queensland and $5.8B that is plainly not the case, despite the annoying recourse to Canberra.
2. When you think the risk will be miss-priced in your favour. Maybe that was once the case for Queensland (you have not documented your assertion), but it surely will not be now.
@GLEN FERGUS Posted Tuesday, 1 March 2011 at 6:27 pm
I agree. Also I should have mentioned in my post (5.14pm) that Victoria is 13% size of Qld. Even with adjustment for the empty bits of Qld relative to Vic, it is still going to be about fivefold more expensive to insure the bigger state (in terms of roads), before even considering the flood and cyclone prevalence and their higher destructiveness.
I hope the Senator does not dig in and stop the Levy on these shaky grounds. Surely he wants to reserve whatever power he has for something both more valid and more worthwhile?
I am reminded of when I first returned from half my life o/s that I looked at insurance. The company demanded I note the most valuable items in my possession which I did (large book library, electronics, computers). A week later they made an offer that specifically excluded all these items! I threw it in the bin and have remained uninsured for house contents. I only take insurance where the law dictates.