ACCC highlights insurance unaffordability in northern Australia

Northern Australian residents and other high-cyclone risk areas continue to face insurance affordability woes, according to the Australian Competition & Consumer Commission’s (ACCC) first insurance monitoring report.

The ACCC has been tasked with monitoring the effects of the government’s new cyclone and cyclone-related flood damage reinsurance pool, operated by the Australian Reinsurance Pool Corporation (ARPC). The report examines the current state of the market and sets a baseline of prices and costs before insurers join the pool.

It found that policyholders in northern Australia and other high-cyclone risk areas face much higher insurance premiums on average. Over the past decade, these premiums have increased more quickly than in the rest of the country. It also found that in 2021-22:

• The average premium for residential combined building and contents insurance in northern Australia was about $2,370, more than $1,000 above the average across the rest of Australia;
• The average premium for strata insurance in northern Australia was about $5,740, nearly double that of the rest of Australia (about $2,940); and
• The average premium for small business building and contents insurance in northern Australia was about $3,160, almost double that of the rest of Australia (about $1,610).

“This first report forms a reference point to assess the actual impact of the pool on premiums and the savings it may generate for policyholders in northern Australia as insurers start joining the pool,” said ACCC Commissioner Peter Crone.

The cyclone and cyclone-related flood damage reinsurance pool commenced operations in July 2022. It aims to improve insurance affordability and accessibility for householders, strata properties, and small businesses in cyclone-prone areas by reducing reinsurance costs.

Insurers are required to participate in the scheme, with large insurers required to join by the end of 2023 and smaller insurers by the end of 2024. This month, insurance giant Allianz announced that it will join the scheme by January 2023.

While some insurers have announced their commitment to the scheme, many have identified challenges in joining it, such as the legislative definition of the pool’s claims coverage period and difficulties adjusting their existing reinsurance arrangements.

“As insurers join the reinsurance pool, we will monitor market developments closely to assess the pool’s impact on reinsurance costs and other premium components and the ultimate effect on the prices faced by policyholders,” Crone said. “In our future reports, we will also examine broader insurance market issues, such as the number of insurers present in cyclone-prone regions.”