Draft legislation for cyclone reinsurance pool given a "resounding thumbs down"

The draft legislation for the Cyclone and Cyclone-related Flood Reinsurance Pool released by the Morrison Government on December 04 has received a “resounding thumbs down” in a treasury roundtable discussion.

The reinsurance pool aims to improve the accessibility and affordability of insurance for households and small businesses in cyclone‑prone areas across Australia – and releasing the draft legislation takes the government one step closer to delivering its commitment to supporting and protecting people in Northern Australia.

On December 06, the Northern Australia Insurance Lobby (NAIL) attended a treasury roundtable discussion and reported that those in attendance rejected the draft legislation.

In a statement, NAIL said the eligibility criteria and mechanism for savings are core issues that need to be reconsidered before passing the legislation. Otherwise, affordability and availability for insurance in Northern Australia will continue to be a “thorn in the side” of the Federal Government.

It pointed out that the draft legislation falls short for mixed-use strata where commercial use is greater than 20% and commercial buildings with a sum insured more than $5 million.

“I started this fight 10-years-ago on behalf of Seastar Apartments, Airlie Beach. It was my home for 15 years. [Ten] years later, we have a ‘solution’ which will have no [effect] on Seastar because it isn’t 80% residential,” said NAIL co-chair Margaret Shaw.

“The reinsurance pool is already a failure in my eyes and a waste of 10 years of my life. It will have no effect on almost all Hamilton Island, most of the Whitsundays, a lot of Cairns, or Townsville or Mackay. What are they thinking?”

By contrast, the Australian Reinsurance Pool Corporation (ARPC), which will administer the reinsurance pool, has welcomed the release of the draft legislation. It has also welcomed the supporting regulations for the cyclone reinsurance pool covering cyclones and cyclone-related flood damage.

Read more: Insurance industry welcomes $50 million funding for flood mitigation

According to NAIL, the legislation proposes that a review take place three years after the legislation is passed because the latest date insurers must prescribe to the reinsurance pool was December 2024.

However, NAIL said three years might be too long for some consumers if the legislation is not fit for purpose.  Therefore, an earlier review period is required to ensure that the reinsurance pool meets the needs of consumers, even if the review is limited only to eligibility and savings mechanisms

It further suggested that:

• Buildings primarily used for accommodation (including those in strata) should not be considered “commercial use,” including but not limited to short-term accommodation, hotels, motels, boarding houses, and aged and other residential care facilities;
• Commercial and mixed-use strata buildings should have the same eligibility criteria as other commercial buildings (i.e., currently a limit for $5million);
• The sum insured limit for commercial use buildings should be higher than $5 million (ideally $20million, but failing that $10 million);
• The reinsurance pool should cover mixed-use strata buildings where residential use exceeds 50% (up from 20%);
• More savings mechanisms are required to ensure the most in need consumers are at worst saving 50% or at best close to parity with consumers in other parts of Australia, which may include a nominal reinsurance charge to eligible policies that have low/no cyclone risk; and
• A review after 12 months limited in scope to consider eligibility and the actual savings.