Allianz says government's reinsurance pool should cover floods

It's time to widen the net…

Allianz says government's reinsurance pool should cover floods

Catastrophe & Flood

By Daniel Wood

In January, Allianz, the global insurer with a strong presence in Australia, became the first insurance company to officially join the federal government’s Cyclone Reinsurance Pool (CRP). The pool is administered by the Australian Reinsurance Pool Corporation (ARPC) and aims to make property insurance more affordable for Australians in the north of the country by reducing the cost of reinsurance for cyclone and cyclone-related flood damage.

However, after a year of flooding disasters across Australia and the increasing unaffordability of flood coverages for businesses and residents in many parts of the country, Nicholas Scofield (pictured above), chief corporate affairs officer for Allianz Australia, has called on the ARPC to go a step further.

“If the floods of 2022 have proven anything, it’s that affordability of flood cover is a national problem and not confined to northern Australia or flooding related to cyclones,” said Scofield. “Allianz is of the view that the government should provide subsidised reinsurance through the ARPC for flooding everywhere in Australia.”

Cyclone reinsurance pool is up and running

The CRP, according to the APRC website, targets support to high and medium risk cyclone-prone areas Australia-wide and covers household, strata, and small business property insurance policies in cyclone prone areas, mainly located in Northern Australia.

The pool commenced operations on July 1, 2022, backed by a $10 billion Government guarantee but without the participation of a single insurer. According to the ARPC, insurers aren’t actually required to join until the end of 2023 - but joining is compulsory for insurers with eligible cyclone risks and gross written premium (GWP) over $10 million.

“It just takes time to prepare for participation in the CRP,” said Scofield. “Allianz commenced working on its participation after the legislation passed the Parliament.”

On March 30, 2022, parliament passed the Treasury Laws Amendment (Cyclone and Flood Damage Reinsurance Pool) Bill 2022 to establish the reinsurance pool for cyclone and related flood damage.

Scofield said his firm engaged in discussions with its reinsurer and assessed the IT changes that would be required.

“When the ARPC released its final premium rates in October, Allianz was able to undertake the work to incorporate them into our householders’ insurance premiums and finalise revised 2023 reinsurance arrangements to take account of the cover provided by the CRP,” he said.

Strata insurance challenges

The Australian Consumers Insurance Lobby (ACIL)  welcomed Allianz’s decision to join the cyclone reinsurance pool but noted severe market failures in the strata insurance industry in Northern Australia.

In response to a question about ACIL’s ongoing concerns about strata insurance, Scofield said Allianz expects to move its residential strata and relevant small business portfolios into the CRP from January 1, 2024.

Scofield also said that Allianz expects other large insurers to start joining the CRP by mid-2023.

On January 18, Sure Insurance joined the pool. “ARPC warmly welcomes the Sure Insurance brand as a customer of the cyclone pool,” said Dr Christopher Wallace, the ARPC’s CEO. “We look forward to working with Sure Insurance to deliver the benefits the pool will provide for cyclone-impacted consumers.”

Sure Insurance is a managing general agent (MGA) underwriting policies on behalf of Liberty Mutual Insurance Company.

Insurance affordability issues

In August last year, ACIL raised concerns that the CRP will not generate the savings needed for cyclone impacted regions.

“ACIL believe savings advised by the previous government of up to 46% are still needed to deal with the issue of affordability and availability of insurance in Northern Australia,” said ACIL in a media release.

The release discussed four ways the government could increase the savings.

“One way the ARPC may achieve greater savings for consumers in Northern Australia is through greater cross subsidisation,” said ACIL.

The lobby group said if the ARPC increased the rating to 0.005% - at a cost impact $25-$35 on a property of $500,000 - it would provide a premium contribution of $867million to the pool.

ACIL also suggested annual government subsidies to the pool as a short term “quick fix” until the pool is reworked to better suit consumers.

“For example, if the government were to contribute $200million p.a. out of consolidated revenue to the reinsurance pool, this would make a great impact on consumers,” said the release.

ACIL also called for more mitigation to reduce the number of claims and the removal of State and Territory stamp duties and levies.

IB would like to know your view. Should the government provide subsidised reinsurance through the ARPC for flooding everywhere in Australia? Please comment below.

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