Will new reinsurance pool make insurance cheaper in northern Australia?

PM Scott Morrison announced this week on Cairns 4CA radio station that the federal government will be introducing a $10 billion reinsurance pool for northern Australia. The reinsurance pool will come into place in July 2022 and the Insurance Council of Australia has expressed its support for the scheme. 

For a bit of background on this, local councils in Queensland recently lobbied for the government to set up a national reinsurance pool and academics have called for fire prevention subsidies. 

Why is insurance a concern in northern Australia?

If you live in northern Australia, you will know why these officials and experts have been calling for government help. In the past few years alone, northern Australia has experienced flooding, bushfires and cyclones. The result of all this is increasingly higher insurance premiums for residents in these areas.

An ACCC report published in November 2019 revealed that between 2018 and 2019 the average home and contents insurance premium in northern Australia was almost double what it was in the rest of the country. Approximately $2,500 compared to around $1,400. 

As a result of these high premiums, Sunshine Coast Council Mayor, Mark Jamieson said that around 62,000 homes in north Queensland do not have insurance at all.

With all this in mind, it’s easy to see why so many are calling for help from the government. The question is what exactly is a reinsurance pool?

Reinsurance pool explained

In short, a reinsurance pool is a way of mitigating risk. This is important as insurance is all about risk, which is why insurance premiums are so high in northern Australia. As these areas have experienced a lot of extreme weather events recently, insurance providers see them as a higher risk to insure.

In other words, if an insurance company provides cover to people in these affected areas, they are more likely to have to pay out. This is where reinsurance comes in. Reinsurance is when an insurance provider transfers a part of its insurance portfolio to another insurance provider. This reduces the risk of that one insurance company paying a huge amount come claim time. You could describe it as sharing the risk to reduce the risk.

The government’s reinsurance pool will work just like this: it will take on some of the risk that comes with insuring properties in northern Australia. In his radio interview, the PM said that the idea is to put a floor underneath the insurance industry. He said, “That will encourage more insurance companies into the market - which is very important to drive down the price of those premiums.”

What does this mean for you?

According to the ABC, the government’s reinsurance pool is expected to reinsure around 500,000 properties to the tune of $10 billion. The broadcasting corporation says the program is expected to reduce insurance premiums for households, strata and small businesses in northern Australia by as much as $1.5 billion over 10 years. 

While some have speculated that premiums could be reduced by as much as 50%, Morrison said in his interview that the government is more cautious about what the outcomes will be. At the end of the day, what this means for you is that if your property is eligible, your insurance premium could go down.

How much insurance premiums go down remains to be seen. As mentioned above the scheme doesn’t start until mid next year, a fact which Queensland Treasurer Cameron Dick has criticised the government on. He says the scheme should be up and running much sooner.

We await the outcome of the government’s scheme but in the meantime, you can get an insurance quote for your home and your belongings via our website. Head to Mozo’s compare home and contents insurance page to see what policies are on offer right now, or check out the list below.