The $10 billion reinsurance pool will subsidise the cost of insurance coverage for cyclones and related flood damage
The Australian Government has announced a $10 billion reinsurance pool to underwrite cover for cyclone and cyclone-related flood for privately-owned homes, strata corporations and small businesses, and a $40m investment in making older strata buildings more resilient to extreme weather events.
The pilot program will subsidise the cost of insurance coverage for cyclones and related flood damage. Over 500,000 property insurance policies are expected to be eligible to receive cover.
The Insurance Council of Australia (ICA) has welcomed the move. The insurance sector engaged industry experts in November last year to look at the issue of affordability and availability of categories of insurance in Far North Queensland where the costs of cover for cyclone is most acute.
A Reinsurance Pool Working Group of insurers was established to work through the Northern Australia cyclone risks. This group will now turn its attention to working with the Federal Government’s announced design and consultation process to determine the operation of the pool.
The recent 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.
Separately, ICA has also welcomed the establishment of the new National Recovery and Resilience Agency (NRRA) and the governments investment of $600m.
The establishment of the NRRA will bring a national focus to building infrastructure, homes and communities that can better withstand the bushfires, storms, floods, and cyclones that are unfortunately a part of Australian life.
Since 2010, natural disasters have cost insurers $29.67 billion and affected hundreds of thousands of communities.
According to ICA CEO Andrew Hall:
“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.
“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.
“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.
“Governments at all levels need to look at other impediments to lower premiums, including the elimination of State insurance stamp duties and levies, improving resilience standards in building codes and land planning decisions, and lifting investment in mitigation infrastructure and household resilience programs.”