The Australian government has commenced a statutory review of the Terrorism and Cyclone Insurance Act 2003, with a focus on the performance and future direction of the nation’s terrorism and cyclone reinsurance pools.
The review is intended to evaluate whether these mechanisms are achieving their policy aims and to consider the ongoing suitability of their governance and operational frameworks.
The terrorism reinsurance pool, operated by the Australian Reinsurance Pool Corporation (ARPC), provides coverage for commercial property and business interruption losses resulting from declared terrorism incidents.
The cyclone reinsurance pool, also managed by the ARPC, was introduced in 2022 to address insurance affordability in regions prone to cyclones and related flooding.
The pool’s primary objective is to lower reinsurance costs for insurers, thereby reducing premiums for households, small businesses, and strata properties in high-risk areas.
Recent data from the Australian Competition and Consumer Commission (ACCC) highlights the early effects of the cyclone reinsurance pool on insurance premiums.
The ACCC’s latest insurance monitoring report, which is the first to reflect full participation by eligible insurers, indicates that policyholders in medium-to-high cyclone risk regions have seen a reduction in premiums since the pool’s inception.
The report shows that average home and contents premiums in these areas have dropped by 11% per $100,000 sum insured. In contrast, properties with low or no cyclone risk have experienced premium increases of 4% and 7%, respectively.
The review will assess whether these pools are fulfilling their intended purposes and whether incentives for risk mitigation remain intact. It will also examine the adequacy of governance, administration, and resources supporting both pools.
According to government modelling, small business marine property insurance policies will remain outside the cyclone pool, as their inclusion is projected to have minimal impact on affordability and could lead to increased costs.
The Treasury has released a consultation paper, along with actuarial analysis by Taylor Fry, to support the review process.
Submissions from stakeholders are invited until Nov. 11. The government is encouraging input from insurers, businesses, and other interested parties to help shape the future of the reinsurance pools.
Dr Christopher Wallace, chief executive of ARPC, commented on the review’s significance. “This review is an important step in ensuring the reinsurance pools continue to meet the needs of insurers, businesses, and the broader community. We encourage all interested stakeholders to participate in the review process and share their views with Treasury,” he said.
The findings from the review, along with stakeholder feedback, will inform any potential adjustments to the reinsurance pools or their administration.
The government’s objective is to ensure that these pools remain effective in supporting insurance affordability and risk management for communities and businesses exposed to cyclone and terrorism risks in Australia.
