The risk pool for cyclone and cyclone-related flood will launch in just three months
Legislation to enable the establishment a Reinsurance Pool for cyclone and cyclone-related flood for homes, strata corporations and small businesses has been passed by the Australian government. The Pool is scheduled to launch in just three months.
The Australian Reinsurance Pool Corporation (ARPC) is expected to release its pricing schedule to give the insurance sector time to price in reinsurance costs and provide visibility to policyholders on expected premium reductions. ARPC will administer the pool from 1 July 2022.
More than 880,000 residential, strata and small business property insurance policies in northern Australia are expected to be covered for the risk of cyclone and related flood damage through the establishment of the reinsurance pool.
By delivering the reinsurance pool, the Government hopes to see reduced insurance premiums by up to $2.9 billion for eligible household, strata and small business insurance policies.
The risk pooling facility is also expected to encourage greater insurer participation in the northern Australian market, thereby increasing competition and putting downward pressure on premiums.
The catastrophe reinsurance pool will be backed by a $10 billion Government guarantee.
Resilience investments needed
A Reinsurance Pool is just one lever available to influence premium prices in cyclone-impacted regions of Australia.
To achieve sustainable premium reductions for those exposed to the risk of extreme weather, including cyclones, governments must increase investment in local infrastructure and household-level programs, according to the Insurance Council of Australia.
ICA has set out an investment pipeline of $2 billion over five years jointly funded by the federal and state governments to better protect communities and households from cyclone, flood, and bushfire risk.
According to ICA CEO Andrew Hall: ”Insurers welcome the passage of the reinsurance pool legislation, which is an important next step on a very complex issue. However, a Reinsurance Pool is just one piece of the puzzle.”
“The recent and ongoing floods have shown the urgent need for investment in measures to better protect homes and communities.”
“While we welcomed the increased funding in last night’s Budget for those communities impacted by this year’s floods, there are dozens of other communities in Australia that remain exposed to perils like cyclones and require similar assistance to uplift their mitigation.”
“In the lead up the election in coming weeks it is incumbent upon the Government to not only assist with recovery, but announce further investments to better protect communities from the impacts of extreme weather.”