Australia’s Federal Government has announced the establishment of a $10 billion reinsurance pool to underwrite cover for cyclone and cyclone-related flood for privately-owned homes, strata corporations and small businesses.
The scheme will also see the government invest $40 million in making older strata buildings more resilient to extreme weather events.
More than 500,000 residential, strata and small business property insurance policies in Northern Australia are expected to be eligible to be covered by the reinsurance pool, which could reduce premiums by more than $1.5 billion over 10 years.
The Insurance Council of Australia (ICA) welcomed the announcement, and stressed the need for more affordable and available cyclone coverage in Northern Australia following a recent inquiry that examined premium prices in the region.
The ACCC Northern Australia Insurance Inquiry supported insurers’ pricing practices, finding the main driver of higher premiums in northern Australia was the higher risk of natural perils like cyclone and cyclone-related flood, the ICA noted.
This same inquiry found that in 2018 to 2019 insurers in northern Australia lost approximately $208 million, and over the 12 years from 2007 to 2008 suffered aggregate losses of $856 million in real terms in the region, highlighting the pressure insurers are under to deliver for customers in a way that is financially sustainable.
“This is a significant commitment by the Federal Government in addressing the shared goal of improving the affordability and availability of insurance for homeowners and small businesses living with the threat of cyclone in northern Australia,” said ICA CEO Andrew Hall.
“Insurers have worked hard for many years in northern Australia to keep premiums affordable and coverage available, however today’s announcement acknowledges that there are costs driven by some cyclone risks that are significant,” he continued.
“The industry has done considerable work on the key fundamentals of a public reinsurance scheme, and if properly designed and implemented a reinsurance pool can put downward pressure on premium costs.”
Commenting on the reinsurance pool, Australian Prime Minister Scott Morrison said: “We believe in the future of Northern Australia … Homeowners and businesses have been faced with crippling insurance costs, and in some cases, can’t get insurance at all. It’s not ok, and we’re going to change that. Our plan will give more Australians in cyclone-prone areas access to affordable insurance.”
Treasurer Josh Frydenberg said a Treasury-led Taskforce will continue work on this to develop the final design of the reinsurance pool in close consultation with industry, with details to be finalised following that consultation process.
“More affordable insurance means peace-of-mind for hundreds of thousands of Australians across Northern Australia, knowing that their economic livelihoods are protected,” the Treasurer said.
Meanwhile, Minister for Agriculture, Drought and Emergency Management David Littleproud said that while the Federal Government is not the insurer of last resort, a reinsurance pool would make insurance easier and cheaper for those in the tropical north.
“It will put more money back into the pockets of those in the cyclone and flood prone areas of far north Queensland and the savings will build in their bank accounts for years to come,” Littleproud said.