The National Insurance Brokers Association (NIBA) has welcomed the federal government’s decision to launch a statutory review of the Terrorism and Cyclone Insurance Act 2003.
The review, announced by Assistant Treasurer and Minister for Financial Services Dr Daniel Mulino MP, will examine the effectiveness and future direction of Australia’s terrorism and cyclone reinsurance pools.
NIBA has long advocated for measures to address insurance affordability and availability, particularly in regions exposed to severe weather risks.
The cyclone reinsurance pool, managed by the Australian Reinsurance Pool Corporation (ARPC), was introduced in 2022 to help insurers manage the costs associated with cyclone and flood-prone areas.
The pool’s aim is to lower reinsurance expenses for insurers, with the expectation that these savings will be reflected in premiums for households, small businesses, and strata properties in high-risk locations.
Despite some reductions in premiums for cyclone-exposed customers, NIBA notes that insurance prices remain high across the country.
Data from the Australian Competition and Consumer Commission (ACCC) indicates that, since the pool’s inception, average home and contents premiums in medium-to-high cyclone risk areas have fallen by 11% per $100,000 sum insured.
However, the ACCC also reports that there has been no significant increase in insurer participation in Northern Australia, and overall insurance affordability remains a challenge.
NIBA previously raised concerns in its 2022 submission that the pool’s design may not sufficiently incentivise insurers to expand into Northern Australian markets.
The association continues to highlight the need for broader solutions to address ongoing issues in insurance availability.
The statutory review comes amid ongoing concerns about the impact of climate-related risks on insurance costs and the broader economy.
Research published in the Journal of International Economics, drawing on Munich Re NatCat statistics, suggests that major natural disasters can reduce GDP by up to 2% in the first year, with cumulative losses reaching as high as 4%. These figures underscore the importance of long-term mitigation strategies to manage the economic effects of extreme weather events.
NIBA CEO Richard Klipin commented on the review: “A proactive approach to disaster mitigation, focused on long-term investments at both community and household levels, will reduce the impact of natural disasters, enhance resilience, and alleviate the financial pressures that increase insurance premiums.”
To support the review, the Treasury has released a consultation paper and actuarial analysis by Taylor Fry.
Stakeholders, including insurers and businesses, are invited to submit feedback until Nov. 11. The government is seeking input to inform the future structure and governance of the reinsurance pools.
Dr Christopher Wallace, chief executive of ARPC, encouraged broad participation in the review process.
“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 review will also consider whether the pools are achieving their intended policy aims, the adequacy of their governance and resources, and whether incentives for risk mitigation remain effective.
According to government modelling, small business marine property insurance policies are expected to remain outside the cyclone pool, as their inclusion would have limited impact on affordability and could increase costs.
