Australia’s government has finalised the design of the reinsurance pool for cyclone and related flood damage.
According to a statement from the Australian government, over 880,000 residential, strata, and small business property insurance policies in northern Australia are expected to be eligible to be covered by the reinsurance pool.
The pool is also expected to reduce insurance premiums by up to $2.9bn over 10 years. Homeowners in northern Australia are expected to benefit from up to 46% premium discounts, strata properties up to a 58% discount and SMEs up to a 34% discount.
Scott Morrison, the prime minister of Australia, said: “We’ve listened closely to our team including Warren Entsch and Phil Thompson so we can cut the cost of insurance for households, strata and small businesses. This is about making northern Australia even more resilient and liveable.”
Morrison added that the pool, backed by a $10bn annually reinstated Commonwealth guarantee and to be administered by the Australian Reinsurance Pool Corporation (ARPC) from July, would deliver on his administration’s commitment to maximising the potential of northern Australia, as well as ensuring access to affordable insurance for cyclone-prone areas.
The Australian Government said it intends to introduce legislation for the reinsurance pool in the first week of Parliament in February 2022, with the pool on track for its scheduled 1 July start date.
The move was broadly welcomed across the Australian insurance sector.
The Insurance Council of Australia (ICA), while seemingly warm to the reinsurance pool’s design, said that further details from the ARPC would be needed in order to properly calculate the effect on premiums. It also said that the government must not add complexity or costs into the system.
In a statement, the ICA said that other measures were needed to improve the affordability and availability of insurance products within the area.
It added: “Making sustainable inroads on premium prices over the long term will only occur with significant investment in measures that make communities more resilient to extreme weather risk, including cyclone and related flood. The Productivity Commission has recommended Commonwealth investment in this area should be $200 million a year, which is around double what is currently allocated, matched by the states and territories.”
Andrew Hall, CEO of the ICA, said: “We expect insurers will take advantage of the Pool to provide additional cover for households and small businesses in northern Australia most at risk, but the next step of commercial negotiations with the ARPC will need to be completed to fully understand the impact on premiums.”
Hall added: “To provide long-term sustainable reductions in premiums Australian governments – both state and federal – need to invest in stronger homes and infrastructure that makes communities more resilient to worsening extreme weather. We must also improve resilience standards in building codes, remove state insurance stamp duties and levies, and make better land planning decisions that factor in worsening extreme weather and its impacts.”
