The Australian Consumers Insurance Lobby (ACIL) fears that the cyclone reinsurance pool will not generate the savings needed for flood-impacted regions.
The reinsurance pool, administered by the Australian Reinsurance Pool Corporation (ARPC), is expected to reduce insurance premiums by up to $2.9 billion for more than 880,000 eligible household, strata, and small business insurance policies in northern Australia.
In July, Assistant Treasurer Hon Stephen Jones MP claimed that the premiums savings the previous government promised were “unachievable.”
In a recent statement, ACIL revealed that the savings advised by the previous government of up to 46% (including savings for strata properties up to 58% and SMEs up to 34%) are still needed to address the unaffordability and unavailability of insurance in northern Australia.
However, all hope is not yet lost as ACIL has outlined four ways the federal government can fulfill the previous government's promise:
Read more: ICA applauds release of reinsurance pool modelling data
Greater cross subsidisation
ACIL noted that properties in rating band A that are not deemed to have a cyclone risk have a rating of 0.000, meaning they do not contribute to the cyclone reinsurance pool. Increasing the rating to 0.005% (cost impact $25 to $35 on a property of $500,000) will provide a significant premium contribution to the $867 million annual premium pool the ARPC is trying to achieve, and the additional cost for buildings without cyclone exposure will have a negligible impact on consumers.
Government subsidies
The government may reduce insurance costs by subsidising the reinsurance pool. For example, contributing $200 million p.a. out of consolidated revenue to the reinsurance pool will positively impact consumers, with the funds allocated to those in the highest rating bands paying the highest premiums.
Mitigation
ACIL explained that reducing the claims for the reinsurance pool reduces the amount of premiums required to be collected. However, more work is needed to demonstrate the cost/benefit to consumers and whoever will pay for the mitigation. For example, it may be difficult to demonstrate the benefit to a consumer spending $30,000 re-roofing a property for a premium saving of $500. However, such spending may generate a saving/benefit for the reinsurance pool.
Removing state/territory stamp duties and levies
Stamp duties and levies collected by state governments increase the cost burden on consumers, particularly those paying unaffordable premiums in the first place. Therefore, removing them will positively impact (as much as 40%) savings to impacted consumers.
ACIL has written to Jones on whether the reinsurance pool in its current form is adequate for consumers and asked him to share his views on how the federal government will make the reinsurance pool more fit for purpose.
