North Queensland apartment owners will have to put up with the massive insurance premium increases (e.g. more than 300%) they have experienced in recent years after an Australian Government Actuary report concluded the premium increases most likely reflected the market waking up to the higher level of risk posed by disasters such as Cyclone Yasi. The Actuary’s report, however, contains some brilliant commentary on the insurance industry’s practices, suggesting it doesn’t really have much of an idea how to price the risk from major natural disasters in premiums. For example:

…catastrophe reinsurance costs are now increasingly allocated in line with the assessed risk presented by the underlying policy. Having said that, catastrophe modelling remains an inexact science…

…in the insurance market, the cost of the product being sold (this refers to the value of the underlying risk) can only be estimated and often only quite poorly. This makes ‘accurate pricing’ of some business segments difficult. Strata title in NQ is one such small business segment.

Given these doubts about the science of insurance premium pricing, it’s possible the premiums NQ residents are paying are higher than justified by the true risks involved. KS at Loose Change has coverage of this issue, too, and he is skeptical about the Government’s suggestion that property owners should negotiate a higher excess in exchange for lower premiums:

Stop Press: Strata Whitewash!