Cyclone Reinsurance Pool Delivering Some Premium Relief for Consumers
There are positive signs of reduced premiums in high-risk cyclone areas, according to the ACCC’s third Insurance Monitoring Report.
According to the ACCC’s third Insurance Monitoring Report of the Australian Government’s Cyclone Reinsurance Pool, there are positive signs of reduced premiums in high-risk cyclone areas.
Established in 2022, the Pool aims to make insurance more affordable for households and small businesses at higher risk of cyclones. The Pool supplies reinsurance to insurers without a profit margin, reducing the cost of reinsurance for insurers.
Key Findings of the Report
The ACCC found that 27% of the combined home and contents insurance policies in areas of medium to high cyclone risk that consumers renewed after their insurer joined the pool experienced a premium decrease.
This compares with only 12% of home and contents policies in areas of medium to high-risk cyclone risk, which consumers who renewed before their insurer joined the pool experienced a premium decrease.
The impact of the pool on insurance quotes for new customers for home and small business insurance was also examined. The ACCC found that home insurance premiums quoted in higher cyclone-risk regions had an average decrease of 8% to 15% across different relative levels of wind risk, with as high as a 24% average decrease for regions with the highest risk.
In contrast, the ACCC found that in lower cyclone-risk regions, quoted prices increased by up to 14%. This suggests that the cyclone reinsurance pool is helping reduce insurance prices for some consumers in regions of medium to high cyclone risk.
“We have seen that the pool has led to some savings for insurers writing policies in higher cyclone risk regions of Australia,” ACCC Deputy Chair Catriona Lowe said.
“Insurers are making changes to pass these savings on to consumers, and also to better recognise specific mitigation measures consumers have implemented.
“However a range of factors including a hardening of global reinsurance markets and extreme global weather events are contributing to these savings being less apparent to consumers, who continue to face very high insurance premiums.”
Looking Ahead
Over time, the ACCC’s monitoring will provide information and data to help examine the pool's impact on insurance prices, costs, and profits.
“Our work should allow governments to evaluate whether the pool is delivering outcomes as intended,” Ms Lowe said. “We are optimistic that the pool can achieve some premium savings and benefits for consumers at higher risk of cyclones, but the pool, on its own, won’t solve acute affordability concerns.”
The key findings of the ACCC’s latest report will inform the work of the government’s Insurance Affordability and Natural Hazards Risk Reduction Taskforce. You can read the full the ACCC report here.