All too common: cyclones and floods have led to rising premiums in the north
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ederal Treasury will need a very large table to seat all those who want to hammer out the details for a cyclone reinsurance pool backed by a $10 billion government guarantee that is intended to take effect in July next year. After a decade of successive federal governments circling the idea and insurers resisting the proposal, a reinsurance pool was announced on May 4 by Prime Minister Scott Morrison in a sweep through north Queensland ahead of the Federal Budget. The focus now turns to its design and operation, and parties well-versed in the debate – particularly insurers – are anxious to be part of the process. Long-time campaigner and co-chair of the new Northern Australian Insurance Lobby Margaret Shaw also says the voice of consumers mustn’t be ignored as the arrangements are put in place. “We want to know what the details are and help to inform them if we possibly can,” she told Insurance News. “I think we have one opportunity to get this right – and we want to get it right, right from the start.” National consumer groups, insurers,
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brokers, reinsurers, strata representatives and business organisations are among those set to put forward their perspectives during a relatively rapid consultation period mounted by a Treasury-led taskforce. Insurance Council of Australia (ICA) Chief Executive Andrew Hall says the insurers are looking forward to working with the Government and other stakeholders on the design and implementation of the pool, while Allianz, a long-term supporter of the pool concept, has welcomed the initiative. “At a high level it is obviously very much consistent with the mechanism we have been advocating for, but you can see from the announcement that there is an enormous amount of work to be done in designing exactly how it will work,” Allianz Australia Chief Corporate Affairs Officer Nicholas Scofield says. The pool, aimed at cyclone and related flood damage affecting residential, strata and small business properties, will be funded via reinsurance premiums paid by insurers, and is intended to be cost-neutral to the Government over time. It also aims to foster greater competition
in a market that has seen a marked withdrawal of capacity. The announcement flags the potential to reduce premiums by more than $1.5 billion over 10 years, and says more than 500,000 insurance policies in northern Australia are expected to be eligible for cover. Finity Principal Rade Musulin says the final form of the pool will be critical in achieving the ambitions, but the Government has the benefit of expertise within the Australian Reinsurance Pool Corporation, which will administer the scheme. Overseas versions – both good and bad – can also be considered. “It’s certainly possible to design pools that break even,” he says. “There are examples of this all over the world, but there are other examples where pools have lost money.” A Treasury consultation paper outlines the broad starting position and poses 23 questions on issues to be resolved before the pool can commence next year. It will be designed to provide a reduced reinsurance premium based on properties’ risk profiles, with higher-risk properties receiving higher discounts.
