The government of Queensland, Australia has bowed to pressure from sources within the government and local ministers and agreed to at least look into the cost of purchasing disaster reinsurance to cover catastrophes such as the flooding and cyclones which have affected the region this year.
When the floods and cyclone Yasi struck Queensland they had no reinsurance in place and so proposed to put a disaster tax into law to pay for damage to government managed property and the road networks.
Queenslands government has come under intense criticism and pressure from their opposition and independent senators who criticised the $1.8 billion flood levy and lack of reinsurance cover. Reinsurers have advised that catastrophe bonds could form part of that reinsurance protection for Queensland.
Here’s a copy of a joint statement on the issue from Queenslands government.
Treasurer Andrew Fraser and Finance Minister Rachel Nolan today announced that Queensland Treasury would go to market to seek expressions of interest for the provision of natural disaster reinsurance coverage for Queensland.
“Currently, most states don’t have coverage for their road assets in their reinsurance policies,” Mr Fraser said.
“The Queensland Government will be seeking reinsurance for natural disasters that includes coverage of our extensive road network.
“The reason for this is clear. Damage to road and transport infrastructure for both the Queensland floods and Cyclone Yasi currently stands at almost half the total damage bill of $5.8 billion.
“As I have repeatedly stated, getting reinsurance coverage for Queensland is an entirely different proposition than it is for any other state.
“Our state is prone to natural disasters, and the decentralised nature of our population means we have many government buildings and major roads spread across vast areas.”
Finance Minister Rachel Nolan said the Queensland Government maintained the policy position that the Natural Disaster Relief and Recovery Arrangements (NDRRA) are the primary mechanism for funding natural disaster reconstruction for every state and territory.
“We will go to market in good faith in order to play a constructive role in this debate,” Ms Nolan said.
“That is why Cabinet has approved we go to the market to examine the state’s options.
“However it is important to note that this is not a commitment for the state to purchase reinsurance. We have an obligation to Queensland taxpayers to seek value for money outcomes, as does every other state and territory government.
“We won’t just be writing a blank cheque to the insurance industry.
“This will be a lengthy and complex process. Barring any details that are commercial in confidence, I will make a commitment to release details of the policy options at the conclusion of the process.”
This is not the first time the Queensland Treasury has undertaken a process like this. The Insurance Commissioner evaluated the state’s insurance arrangements through a 12 month process in 2004.
The policy position was also reviewed by the Queensland Government Insurance Fund in 2009.
More than $2 billion worth of the damage bill is for local government assets. The assets of other levels of government (including the assets of the Commonwealth) will obviously not be within the scope of the exercise to be conducted by the state.