The Australian Consumers Insurance Lobby (ACIL) has published a number of measures for Australia’s Federal Government to consider in order to drive premium savings from the cyclone reinsurance pool to the levels needed to assist policyholders.
The ACIL fears the cyclone reinsurance pool, administered by the Australian Reinsurance Pool Corporation (ARPC), will not generate the savings needed for flood-impacted regions.
They believe that savings advised by the previous government of up to 46% (including savings for strata properties up to a 58% and SMEs up to a 34%) are still needed to deal with the issue of affordability and availability of insurance in Northern Australia.
According to ACIL, as part of measures to drive premium savings from the cyclone reinsurance pool, the Federal Government should consider cross subsidisation between regions around the country.
“If the ARPC were to increase the rating to 0.005% (cost impact $25-$35 on a property of $500,000). This would provide a significant premium contribution to the $867million annual premium pool the ARPC are trying to achieve and the additional cost for buildings with no cyclone exposure would have a negligible impact on consumers,” said the ACIL.
Direct government subsidies paid to the pool may provide a more immediate benefit, but are not likely to be a long-term solution.
The ACIL said: “The government could reduce insurance costs by subsidising the reinsurance pool – for example if the government were to contribute $200mn p.a. out of consolidated revenue to the reinsurance pool, this would make a great impact on consumers. The funds could be allocated to those in the highest rating bands paying the highest premiums.”
The premium burden can also be minimised through mitigation and the removal of state and territory stamp duties and levies.
However, according to ACIL, while mitigation measures should be considered by the Treasury and the ARPC, more work needs to be done to demonstrate the cost/benefit to consumers and whomever will pay for the mitigation.
Stamp duties and levies collected by state governments increase the cost burden on consumers, particularly those paying unaffordable premiums in the first place. Therefore, removing them will positively impact (as much as 40%) savings to impacted consumers.
