Cyclone reinsurance pool legislation finalised, some questions remain

Long shot of lighting and rainclouds in the evening behind field with trees.
Photo by Flash Dantz on Unsplash

Last week the Federal Government finalised the design of a reinsurance pool for cyclone and related flood damage that will dedicate $10 billion towards supporting affected residents and small businesses in northern Australia.

The scheme is set to kick off on 1 July this year, with the intent to provide more affordable cover for Australians now struggling to insure their properties due to soaring premiums. This has all come off the back of a 2019 Australian Competition & Consumer Commission (ACCC) report which found home insurance was costing those living in northern Australia double that of the rest of the country, with some areas quadrupling the national average.

Because of these exorbitant premiums (which are a response to increasingly volatile weather caused by climate change), the number of people in this region without home building insurance stood at about 20% at that time, compared to approximately 11% for the rest of the country. 

What is the cyclone reinsurance pool? 

It’s essentially a government fund which takes on some of the risk of insuring properties, meaning insurance companies can, theoretically, provide more affordable cover since a proportion of this risk is transferred. Household, strata and small business insurance policies are all eligible for this cover.

In the most recent announcement, the government has claimed the reinsurance pool will see homeowners receive premium discounts up to 46%, strata properties up to 58%, and small-to-medium business enterprises (SMEs) up to 34%. It’s anticipated this will amount to around $2.9 billion in insurance reductions over ten years.

However, some are sceptical about this forecast. Townsville Chamber of Commerce chief executive Ross McLennan told the ABC that the bill was a step in the right direction, but the legislation made "very bold predictions".

"We've got no data that is going to be able to verify that. They've obviously got some modelling they're working on but that hasn't been disclosed to us,” McLennan said.

"There is some stuff based around reporting and verifying these assumptions, but they won't be due until 2024."

In the government’s statement, Treasurer Josh Frydenberg said “price monitoring by the ACCC will provide transparency on how the benefits of the pool are being passed onto policyholders.”

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