Home coverage is becoming easier to obtain in Northern Australia – ARPC

Premium difference among regions is still notable

Home coverage is becoming easier to obtain in Northern Australia – ARPC


By Kenneth Araullo

The Australian Reinsurance Pool Corporation (ARPC) has released an analysis suggesting an improvement in general insurance availability for residents in cyclone-prone regions across Australia.

The analysis is centered on the new cyclone reinsurance pool, managed by ARPC, and is based on online home insurance quote data provided by Finity Consulting. The data is a part of ARPC’s first-ever financial outlook report (FOR), which assesses the impact of the cyclone pool on the market for the financial year ending June 30, 2023.

Although the report covers only six months of some insurers participating in the pool, it also details the premiums these insurers have paid to ARPC. These premiums align with ARPC’s initial projections.

Findings from the new cyclone reinsurance pool

The financial stability of the cyclone pool remains consistent since its inception in July 2022, it was stated. While the pool currently insures about half of all eligible properties, the premiums ceded are in line with original expectations. ARPC proposes no significant changes to the overall level of cyclone reinsurance pool premium rates for the time being, pending further market experience.

The cyclone pool aims to provide more significant relief to regions with higher cyclone risks. For instance, the premium difference is notable between Brisbane ($146 for home) and Townsville ($709). Premiums for properties in low-risk, high-population areas have been utilized to subsidize those in less populated, higher-risk regions.

The FOR identifies two main risks that could lead to increased costs and premiums for the cyclone pool: inflation and climate change. Building cost inflation was 11.4% for the year ending March 31, 2023, which is higher than long-term expectations and may contribute to higher premiums and underinsurance rates. However, Treasury forecasts suggest inflation will return to the government’s preferred range by 2024-2025.

Potential climate change impacts include cyclones moving further south, fewer but more damaging storms, and rising sea levels causing coastal inundation.

Looking ahead, the ARPC plans to make the FOR an annual publication. Starting in 2024, the report will be submitted to the Assistant Treasurer by October 15 each year and released to the public within 10 business days.

The cyclone pool, launched by ARPC in 2022, aims to enhance insurance affordability and availability in medium to high cyclone risk areas. It covers three business classes: household, strata (residential and some commercial), and small to medium enterprises (SMEs).

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