Highlights of the 2024 Federal Budget and insurance implications

The latest Federal Budget has given rise to various insurance implications, particularly with regard to green energy development, cyber security, disaster preparedness and cost of living. We take this opportunity to discuss some of the key measures proposed in the Budget and the implications for insurance.

The last few years have presented challenging natural disaster conditions which have caused significant financial loss and pressure on the insurance industry. Bellrock has observed a rise in flood claims in the past few years due to extreme weather events which have caused serious issues in flood plain areas, highlighting the need for businesses in such areas to hold comprehensive cover inclusive of such risks.

Thankfully, more government funding will now directed towards improving the capacity of the National Emergency Management Agency to provide support for Australians throughout the natural disaster experience.

On 31 May the Government announced the establishment of a new Insurance Affordability and Natural Hazard Risk Reduction Taskforce to develop an integrated, cross government‑ approach to minimising the impacts of disaster on the community and help address insurance costs driven by more frequent and intense weather events.

The Minister for Emergency Management, Senator Murray Watt, reaffirmed the government’s commitment to continuing to work with the insurance sector stating:

“This feeds into some of the work that we’re doing more broadly with some of Australia’s biggest insurers through the Hazards Insurance Partnership to put downward pressure on insurance premiums and increase availability of coverage in communities at risk of natural hazards.”

Notwithstanding this, the Insurance Council of Australia (ICA) remains critical of the allocation of stamp duty revenue earned by state governments. Andrew Hall, CEO and Executive Director, ICA said:

“The Budget papers show that the forecast cost to the Commonwealth alone of recovering from the disasters of recent years has increased by almost $4b just since December, highlighting why investment in disaster mitigation is more important than ever.

The Insurance industry continues to work constructively with the Government to find ways to put downward pressure on insurance costs and build a more resilient Australia, including continuing to highlight the $6.8b stamp duty take on premiums by state governments and the need to return some of that funding to stronger resilience and mitigation measures.”

The most significant initiative in the budget is the Government’s $19.7b spend over ten years to accelerate investment in ‘green/sustainable’ industries, including renewable hydrogen, green metals, low carbon liquid fuels, refining and processing of critical minerals and manufacturing of clean energy technologies including in solar and battery supply chains.

This will include funding to progress Australia’s regulatory response and release a National Robotics Strategy to promote the responsible production and adoption of robotics and automation technologies in Australia.

An investment of $39.9m over five years will provide for a re-vamp of the National AI Centre and establish an AI advisory body, supporting the development and coordination of Artificial Intelligence (AI) policy and engagement activities, and mitigate against the risks AI poses to national security.

Whilst AI and other forms of digital technology are now being used to great effect to improve business processes and operations, it is also important to recognise the risks associated with such technology. AI can sometimes be wrong, and the data it uses can be manipulated by cyber criminals to obtain confidential information through data poisoning attacks and prompt injection attacks. Businesses should therefore ensure that their cyber risk management strategies are adapted to their use of AI. We considered the Australian Cyber Security Centre’s new guidance for engaging with AI in our recent article here.

The insurance market coverage for AI-related risks remains in its infancy with insurers going through a process of clarifying policy coverage and addressing ‘silent cover for AI risks”.

The work of underwriters will need to assess the governance in place when considering insuring organisations that have or intend to adopt AI. Businesses will need to articulate the intended use of AI, the data relied upon by it and the outcomes produced before insurers can begin to properly underwrite risks.

This year’s Budget announcements follow on from the Government’s November 2023 announcement of Australia’s National Cyber Security Strategy – an ambitious vision for Australia to be a world leader in cyber security by 2030.

Various cyber security strategies are being invested in to help both government bodies and Australian businesses cope with increasing rates of cyber crime and data breaches but the funding announced in this year’s Budget is focused on improvements to the public sector more than the private sector.

The Budget includes investments in data storage for the next census, improvements to the data capability and cyber security of regulators as well as funding part of broader IT improvements to Services Australia and NDIS’ technology systems.

For individuals, the government will provide additional funding for a mobile app to enable Australians to easily and swiftly protect their identity credentials with $288.1m to expand Australia’s digital ID systems, within a broader $1b investment in My Gov and Services Australia digital enhancements.

Bellrock has observed the importance of implementing a robust cyber security risk management system from an enterprise level down to operational protection. For medium to larger enterprise, insurers expect organisations prioritise cyber protection. Organisations should refer to the Essential Eight strategies to mitigate against cyber attacks.

Improvements in disaster risk management and loss mitigation as a deployment of budget funding is welcomed by the insurance industry. If implemented, these measures should translate to the increased availability of insurance as well as reduced bushfire and flood risk for those ‘at risk’ communities.

Additional funding to support AI security and governance measures will be welcomed by insurers seeking to underwrite this area of risk. However, industry bodies have expressed concerns that Australia continues to lag behind the level of funding allocated by governments around the world and in turn, its ability to seize opportunities and prepare for challenges associated with widespread adoption of AI.

In relation to cyber security, the Budget has delivered funding as foreshadowed in the National Cyber Security Strategy announced in November 2023. The continued push for cyber awareness and maturity among Australian businesses has been punctuated with increased regulatory action, making cyber risk an important compliance consideration for boards.

Cognisant of the upcoming election, in broader economic terms, the Government will no doubt be hoping that the cost of living relief proposed in the Budget does not result in further inflationary pressures on an already slowing economy.