AST CC published a report that is titled Insurance monitoring - first report following the introduction of a cyclone and cyclone-related flood damage reinsurance pool.
Report found that policyholders in northern Australia and other high cyclone-risk areas face much higher premiums on average, and that those premiums have increased.
This increase has been more quickly than for rest of the country over the past decade.
Also follows AST PRL Oct. 2022 announced cyclone reinsurance pool inquiry, #150529.
Report Overview
Report states the AST GVT has introduced a cyclone and cyclone-related flood damage reinsurance pool (the pool) aimed at improving affordability as well as accessibility.
Namely, of insurance for households and firms in cyclone-prone areas of Australia.
Pool is administered, operated by the Australian Reinsurance Pool Corporation (ARPC).
AST CC has been directed to monitor effects of pool, report at least once each calendar year until 2026; it is AST CC’s 1st monitoring report following pool's commencement.
As no insurer is currently using the pool, this first report focuses on the background as well as context to the pool’s introduction along with the AST CC's monitoring role.
Sets out findings on current insurance premiums; costs; insurers’ views on the pool.
This report will provide a benchmark for AST CC's future analysis in subsequent years.
AST CC Comments
Reminded participation in scheme will be mandatory for insurers; there is a transition period; large insurers required to join by end of 2023, smaller insurers by end of 2024.
To date, no insurers have started using pool; 1 insurer is set to partly join pool in early 2023; however, many appear likely to enter pool closer to their legislative deadlines.
The report also notes that many insurers have identified challenges in joining the pool.
This includes the legislative definition of the pool’s claims coverage period; it also includes insurers' difficulties with adjusting their existing reinsurance arrangements.
AST CC stated that in its future reports, AST CC will also examine broader insurance market issues, including the number of insurers present in cyclone-prone regions.
Effectiveness
Large insurers required to join by Dec. 31, 2023; smaller insurers by Dec. 31, 2024.
Dec. 2023 Second Annual Report
On Dec. 8, 2023, AST CC published report re titled Insurance monitoring - December 2023 - second report following the introduction of a cyclone and cyclone-related flood damage reinsurance pool re above, and also discussed the findings contained within it.
AST CC said it observes that it is yet to see any significant widespread price effects from the AST GVT's cyclone reinsurance pool in 2022-23, given insurers only began joining the pool at start of 2023, and most that have joined did so on/after Jul. 2023.
In addition, said it continues to find that policyholders in Northern Australia are paying, on average, substantially more for their insurance compared to the rest of Australia.
A key objective of pool is to make insurance premiums more affordable; pool is still in transition and its early effects are unlikely to have extended to most consumers yet or be directly reflected in this year’s data reported to AST CC which is from 2022–23 year.
AST CC said it also sought to understand how insurers are implementing the pool and their approaches to passing on any savings it generates; AST CC said it observed that implementing the pool in accordance with the AST GVT's policy intent is complicated.
It has not been given power to require insurers to take a particular approach to pass-through of savings, nor require them to communicate their approach to consumers.
However, it expects insurers to be truthful, accurate on representations to consumers.
It remains optimistic pool can achieve some premium savings, benefits for consumers at higher risk of cyclones; but previous Northern Australia insurance inquiry has shown more may need to be done via other interventions; it will continue to monitor closely.
Sep. 2024 Third Monitoring Report
On Sep. 19, 2024, AST CC published the third insurance monitoring report following the introduction of a cyclone and cyclone-related flood damage reinsurance pool.
The report focuses on how prices and costs are changing following insurers’ entry into the pool and how insurers are implementing the pool; provided a partial assessment of the impact of the pool through a transitional period and as policies are renewed.
Reinsurance pool is helping to reduce the price of insurance for some consumers in regions of medium to high cyclone risk; while premium increased in low risk region.
However, home, strata and small business insurance premiums remained much more expensive in northern Australia where cyclones are more prevalent, than rest of area.
