Australia’s Cyclone Reinsurance Pool offers a practical example of how governments and insurance markets can work together to address climate-related catastrophe risk, according to Australian Reinsurance Pool Corporation (ARPC) chief executive Dr Christopher Wallace, who outlined the scheme’s design and policy objectives at an international forum examining insurance protection gaps across Asia.
Speaking at the 2026 Organisation for Economic Co-operation and Development (OECD) and Asian Development Bank Institute (ADBI) Roundtable on Insurance and Retirement Savings in Asia in Colombo, Sri Lanka, Wallace said Australia’s experience demonstrates how public-private partnerships can support insurance affordability while preserving commercial market participation.
The roundtable brought together policymakers, regulators, insurers, academics, and international organisations to examine insurance protection gaps, retirement savings, and policy responses to evolving climate risks. Wallace’s presentation formed part of a session on innovative approaches to addressing climate risks, reflecting broader international efforts to identify ways of improving financial resilience against natural disasters.
The discussion comes as governments across Asia continue to examine insurance protection gaps created by rising catastrophe losses, affordability pressures, and uneven access to insurance. In its 2025 report, Protection Gaps in Insurance for Natural Hazards and Retirement Savings in Asia, the OECD said narrowing those gaps will require coordinated approaches involving governments, insurers, and other stakeholders, with public-private partnerships increasingly forming part of policy discussions on catastrophe risk financing. “I’d like to share Australia’s experience with our Cyclone Reinsurance Pool. Not as a blueprint, but as a practical example of how governments and markets can work together effectively to address a very specific climate risk,” Wallace said.
Wallace said the cyclone pool was established with four objectives: maintaining sustainable premiums over the long term, improving affordability for households and businesses exposed to higher cyclone risk, preserving incentives for mitigation, and ensuring lower-risk customers are not materially disadvantaged.
Unlike commercial reinsurers, the government-backed pool does not include allowances for profit, uncertainty, or the cost of capital because it is supported by a Commonwealth guarantee. Wallace said removing those costs allows the scheme to absorb extreme catastrophe volatility without passing the full cost through to policyholders. “This allows the system to do something private markets often struggle to do: absorb extreme volatility without fully pricing it into premiums,” he said.
Presentation material released by ARPC showed the pricing framework redirects savings created by removing capital costs toward medium- and high-risk properties while maintaining premiums in lower-risk areas at levels broadly consistent with commercial reinsurance markets. Targeted cross-subsidisation remains a defining feature of the scheme, with higher-risk households paying below the full technical cost of risk as part of a policy decision intended to improve affordability in cyclone-prone regions.
Wallace said catastrophe schemes should be designed to accommodate volatility rather than react to individual events, noting that cyclone losses can vary significantly from year to year even when long-term averages remain relatively stable. “The core question is not whether losses will occur, but how they are financed and smoothed over time,” he said. He cited Tropical Cyclone Alfred, which generated about $1.5 billion in losses and remains the largest event experienced by the cyclone pool, as an example of why government backing and long-term financing arrangements are central to managing catastrophe risk.
Although individual weather events are becoming more costly, Wallace said there is not yet sufficient evidence that Australia’s cyclone frequency or geographic distribution has changed enough to justify a fundamental shift in pricing. Instead, ARPC continues to stress-test its models while working with scientific agencies and international partners to monitor emerging climate evidence. The OECD has similarly identified financial protection against catastrophic risks as an emerging policy challenge, noting that governments are increasingly considering mechanisms that complement private insurance markets while improving resilience and narrowing protection gaps.
Wallace said improving affordability alone would not be enough to ensure long-term insurance availability without stronger investment in resilience. The cyclone pool provides premium discounts for mitigation measures, including roof strengthening, improved window protection, and structural reinforcement. However, Wallace said greater consistency in collecting and sharing mitigation data across the insurance sector would be needed to ensure resilience investments are recognised throughout the life of an insurance policy. “The pool is not just about absorbing risk but also reshaping it,” he said.
He added that insurance incentives should work alongside building codes, land-use planning, and engineering standards to reduce long-term disaster risk. Wallace also identified broader lessons from Australia’s experience, including the importance of government backing in managing catastrophe volatility, maintaining broad risk pools to support affordability, and allowing policy settings to evolve over time as evidence emerges.
Wallace’s remarks come as the Australian government conducts the first statutory review of the Terrorism and Cyclone Insurance Act 2003 since the cyclone pool was introduced. The review is examining whether the scheme continues to meet its objectives, including improving affordability in cyclone-prone areas, maintaining incentives for mitigation, and ensuring its governance and operation remain appropriate. The speech also follows several recent assessments of the pool’s performance. ARPC’s latest premium assessment found average home insurance premiums in the highest-risk areas have fallen by up to 37% since the scheme began in October 2022.
Separately, the Australian Competition and Consumer Commission’s (ACCC) fifth and final monitoring report concluded that the cyclone pool had moderated premium increases for many households and small businesses in medium- and high-risk cyclone areas while noting that broader claims costs, inflation, and extreme weather continue to influence insurance affordability. The regulator also found insurers were generally passing through lower reinsurance costs associated with the pool and reported improvements in insurance availability in eligible regions.
Together, those developments provide additional context for Wallace’s argument that government-backed reinsurance can complement commercial insurance markets while supporting affordability, resilience, and long-term management of catastrophe risk as policymakers continue to examine responses to climate-related insurance challenges in Australia and across the Asia-Pacific region.
