The government has released draft legislation for a reinsurance pool for cyclones and related flood damage from 1 July 2022
The Australian government has released draft legislation for a reinsurance pool for cyclones and related flood damage to start operations on 1 July 2022. It will be backed by a $10 billion government guarantee.
The pool, to be administered by ARPC [Australian Reinsurance Pool Corporation], will cover residential, strata and small business property insurance policies in cyclone prone areas, mainly located in Northern Australia.
Cover for small business marine property insurance policies will be further developed and included from 1 July 2023.
The draft legislation has been released following consultation with the insurance industry and community representatives, as well as other interested stakeholders, to develop a final design.
The Insurance Council of Australia (ICA) says insurers will now need to investigate and test how the model will operate to drive down premiums and improve availability for cyclone and cyclone-related flood over the next two weeks of consultation on the draft Bill.
The 2020 Northern Australia Insurance Inquiry, undertaken by the ACCC, supported insurers’ pricing practices, finding the main driver of premiums in northern Australia was the higher risk of natural perils like cyclone and cyclone-related flood, noted ICA.
The same inquiry found that in 2018-19 insurers in northern Australia lost approximately $208m, and over the 12 years from 2007-08 suffered aggregate losses of $856m in real terms in the region, highlighting the pressure insurers are under to deliver for customers in a way that is financially sustainable.
According to ICA CEO Andrew Hall: ”We recognise that it is one part of the solution to improving affordability and availability of insurance for those living with the threat of cyclones in northern Australia.
”To create a long-term and sustainable market for insurance, more must be done at all levels to lower the physical risks by improving resilience standards in building codes, reform of unfair state insurance stamp duties and levies, and making better land planning decisions into the future that factor in the climate impacts.”