The government confirmed this week that the bill – which will establish a reinsurance pool for cyclone and cyclone-related flood for small-business insurance policies, as well as weak privately owned homes and strata corporations – will take effect from 1 July 2022 and be backed by a $10 billion annually reinstated Commonwealth guarantee.
It’s expected that over 880,000 residential, strata and small-business property insurance policies in northern Australia will be eligible, while the pool will reduce insurance premiums by up to $2.9 billion over 10 years.
“We’ve listened closely to our team including Warren Entsch and Phil Thompson so we can cut the cost of insurance for households, strata and small businesses,” Prime Minister Scott Morrison said.
“This is about making northern Australia even more resilient and liveable.”
It comes after the ACCC’s 2020 northern Australia insurance inquiry supported insurers’ pricing practices and found that the biggest factor in premiums in northern Australia was the higher risk of “natural perils” such as cyclones.
In that inquiry, insurers in northern Australia lost $208 million in 2018 and 2019 and between that year and 2007, aggregate losses totalled $856 million.
The Insurance Council of Australia (ICA) welcomed the news, however chief executive Andrew Hall said further details on pricing arrangements will be required to provide clarity for insurers.
“We expect insurers will take advantage of the pool to provide additional cover for households and small businesses in northern Australia most at risk, but the next step of commercial negotiations with the Australian Reinsurance Pool Corporation (ARPC) will need to be completed to fully understand the impact on premiums,” he said.
“To provide long-term sustainable reductions in premiums Australian governments – both state and federal – need to invest in stronger homes and infrastructure that makes communities more resilient to worsening extreme weather.”
Meanwhile Insurance Group Australia managing director and CEO Nick Hawkins said the pool will play an “important role” in both helping prepare and protect communities.
“IAG will continue to work with the Federal Government and insurance industry on the implementation of the reinsurance pool, and we look forward to seeing the benefits for communities across northern Australia,” Mr Hawkins said.
