Should uninsured bushfire victims receive donated or government money to rebuild their homes?

| March 5, 2009

Is it fair for government or donated money to rebuild uninsured homes, given that it leaves little incentive for homeowners to insure their homes in future?

Close to 2000 homes have been destroyed by the Victorian bushfires, and fires are still burning. It is suspected that while many of these homes were insured against fire, a large minority were not. Is it fair for government or donated money to rebuild uninsured homes, given that it leaves little incentive for homeowners to insure their homes in future? And when it comes to that, why is property insurance in Victoria so darned expensive anyway?

As of 19 February bush fires in Victoria were estimated to have totally destroyed 1800 homes, and fires continue to burn. According to Paul Giles, spokesman for the Insurance Council of Australia (ICA), insurance companies believe that 30 percent of destroyed properties had no insurance and that others are underinsured. The Victorian Bushfire Appeal Fund has raised over $200 million but there is disagreement over whether, or the extent to which, Fund money should be used to help uninsured people whose homes have been destroyed or damaged:

"Why would you pay insurance premiums for 15 years when you know the bloke next door (without insurance) is going to get his home rebuilt to the same standard or higher?" asked council spokesman Paul Giles.

"We have compulsory third-party personal insurance for motor vehicles and you have to wonder why we are not having this discussion," he said.

Premier John Brumby said that compensating the uninsured out of the fund, which has so far raised more than $200 million, was under consideration, although no decision had been made. A government spokeswoman said the issue of mandatory house insurance would be examined by the bushfire royal commission.

After the long droughts of recent times, many rural residents no doubt have trouble making ends meet. Property insurance may be lower priority than putting food on the table and keeping the family vehicle running. It seems unreasonable to think that because they took the risk of non-insurance they are entitled to nothing at all. Of course people whose homes were burned out still own the block of land on which the home once stood. But they probably hope for better than just an army surplus tent to erect among the ashes.

And I think, rightly so. So that is one topic for further discussion: what is a reasonable deal for the uninsured?

But there is an uglier side to the whole issue.

In New South Wales and Victoria, a 22 percent state fire service levy is added to the actual price of property insurance. So the insured homeowner, besides funding a large proportion of the fire service costs, is paying for the Bush Fire Brigade to not only protect his own home, but to protect the home of the uninsured bloke next door. (In other states except Tasmania, this funding is provided by a charge on council rates, which all property owners pay.) That’s not the end of it. There is then 10 percent GST, and a further 10 percent state government stamp duty on the lot.

It is not surprising that some homeowners have trouble affording insurance, given all the costs that are bundled in.

So there’s a second topic: how can Victoria and New South Wales be encouraged/impelled/shamed into putting fire service funding on an equitable basis and getting rid of the stamp duty? Supposedly the Goods and Services Tax was going to drive a stake into the heart of all these nuisance taxes.

It has not happened.



  1. Jimbo

    March 9, 2009 at 3:28 am

    subsidizing bushfire rebuilding

    Digging a hole and dropping a premade concrete bunker into it, shouldn't be desperately expensive. If it filled up with water during the winter, this could be all used on the garden by the time fire season came around.

    Non-combustible eaves filler to prevent birds filling roof spaces with tinder, could be made compulsory if using corrugated metal roofing.

    Items like these could be a priority for government subsidy.

    It sounds very sensible to put the fire services levy onto rates, rather than on insurance premiums

  2. MikeM

    March 9, 2009 at 11:27 am

    Moral hazard wins – for now

    The Age reported last week:

    Uninsured fire victims to get money to rebuild (David Rood, March 5, 2009)

    UNINSURED bushfire victims who lost their homes to the Black Saturday blazes will receive funding from the bushfire appeal to help rebuild.

    The head of the Victorian Bushfire Fund's advisory panel, John Landy, said part of the total of more than $200 million raised would be used to rebuild the homes of those with and without insurance. "What we said is when it is an owner-occupied situation we will be supporting the rebuilding whether they're insured or uninsured," he said on 3AW.

    "People gave money in a terrible situation … people losing members of their families, their homes, everything. The humanitarian imperative overrules everything else."

    With more than 2000 homes destroyed by the fires, Mr Landy said it was a complex task to determine the insurance cover and needs of fire victims.

    Premier John Brumby confirmed there would be support for the insured and uninsured to rebuild. An announcement would be made next week.

    "Clearly people who haven't got any support, who've lost everything, who have been uninsured, maybe they get a bigger hand along," he said.

    "It's a big, complex question, you're talking about more than $100 million in expenditure." […]

    There seems to be growing consensus for compulsory home insurance against catastrophic events, probably by tacking the premium onto local council rates. This would substantially lower existing premiums by spreading the pool cost across all home owners, not just the ones who choose to insure.

    But it may come at a cost. In bushfire prone areas, ABC Radio National reports:

    SAMANTHA DONOVAN: The new national standards for construction in bushfire prone areas are to be introduced right around Australia in May next year.

    But with 2,029 homes having been destroyed in last month's bushfires the Victorian Government has decided to bring the code in from next Wednesday.

    It will mean those planning to rebuild their homes will need to be comply with the strictest standards so far developed in Australia.

    The Victorian Government has decided that the new standards will apply across the entire State.

    Victorian Premier John Brumby:

    JOHN BRUMBY: Probably about 10 per cent of houses that get built in the future, they would be assessed as having a medium level risk and there's probably about 10 per cent that would have a high or extreme risk.

    It's the building surveyors and the designers who will make that assessment, but particularly the surveyors working to local government.

    SAMANTHA DONOVAN: Areas will be rated in six categories from low to extreme risk. In the most threatened areas new homes will need to be built on a concrete slab with the exterior walls, roof, verandah and deck made of non-combustible materials like brick veneer or concrete.

    Window glass must be toughened and protected by shutters and wall and roof joints must be sealed to guard against ember attacks.

    John Brumby admits that the cost of building a new home will increase for some people.

    JOHN BRUMBY: If a house did have to build to a higher extreme level you're probably adding around $20,000 to the cost.

    SAMANTHA DONOVAN: The distribution of the funds donated to the bushfire appeal is still to be finalised but Premier Brumby believes it's likely that people who've lost their homes are likely to receive a payment which may help cover some of the extra costs the new regulations will impose.

    JOHN BRUMBY: I think it's very likely that the appeal fund will make a payment to everybody who's lost a property, if it's a principal place of residence, and to be honest, that will help, if not more than compensate for any additional cost that there might be as part of the rebuilding.

    SAMANTHA DONOVAN: The ferocity of the Black Saturday fires has left many homeowners wondering if they should build bunkers for shelter in an emergency but John Brumby says the Victorian Government isn't going to advocate that option.

    There is more water yet to go under the bridge. The big sleeper is the need for regular hazard reduction burn-offs versus concerted community opposition to them.

    The move may also affect building costs in areas subject to tropical cyclones, floods and, as evidence accumulates, earthquakes.

    MikeM has never found a hazard that he thinks is moral.

    • maggiegardener

      June 29, 2009 at 9:20 am

      I didn’t put a match to my house
      That one can suggest that because I was noy insured I do not have a right to the funds donated to assist me in this tragedy is quite offensive.  I know of many who donated to assist specifically people in my situation.  The funds recieved by me fall immensely short of rebuilding what I have lost and in no way will I be in the position I was prior to this fire.  I have had to take out a $100,000 mortgage and will be required to build a house under the new regulations that will cost double the value to get an equivalent home to that I had.  The effect of this mortgage will be to extend my ability to retire by five years.  And I still do not know if I will be in a situation to build at all.  The generosity of spirit of the Australian public in assisting me has gone a long way to restoring my spirit and the financial assistance has been greatly appreciated because what the government has provided fell immensely short and failed even to provide for temporary accomodation.  This event has shown shortcomings in a number of areas and to suggest insurers of any kind were paying to defend my property has me very miffed.  Our area is serviced by volunteer fire fighters known as the CFA and were found wanting due to the enormity of the event.  Perhaps what needs to be looked at are the issues that need to be resolved to prevent such devatation occuring again rather than commence a dialogue that effectively suggests the victims are responsible in some way for this tragedy.  I will remind all those with such thoughts that I did not put a match to my house and set it on fire.