Residents and businesses in southeast Queensland and northern NSW continue the slow recovery from the impacts of ex-Tropical Cyclone Alfred. According to the Insurance Council of Australia (ICA), insurers have received more than 63,000 claims and the majority, said an ICA release, concern food spoilage, wind damage and water ingress.
Meanwhile, in news reports Monday, Treasurer Jim Chalmers said ex-TC Alfred has blown a $1.2 billion hole in the next federal budget.
However, for insurers dealing with losses from the cyclone, stakeholders say the government funded Cyclone Reinsurance Pool (cyclone pool) is likely significantly reducing their costs.
“One thing is it'll [the cyclone pool] ensure the industry stays solvent,” said Sharanjit Paddam (main picture) in an interview last week with Insurance Business. Paddam is principal of Climate Analytics for consultancy firm Finity.
“It's just technically impossible for the pool to become insolvent,” said Paddam. “The only way that happens is if the federal government becomes insolvent.”
He said under the government’s rules, damage that happened until 48 hours after the Cyclone is covered by the pool.
“So that means the insurers are definitely protected from this [losses from ex-TC Alfred],” said Paddam.
“So what we won't see is massive increases in reinsurance premiums paid to the pool next year, which gives insurers a lot of stability and, consequently, consumers a lot of stability,” he said. “The contrast in the 2022 floods was after that we saw massive increases in reinsurance rates which were mostly responsible for the big rise in insurance premiums that we saw over the last few years.”
However, the flooding and water issues that are still producing claims post the 48-hour period, he said, “won't be covered by the pool.”
“They'll [the flooding post-48 hours] still be covered by the insurer, so consumers won't be affected by this, but it means the insurer has to claim off other reinsurers, not the pool itself, and that part will flow into impacts on pricing,” said Paddam.
Insurance Business asked, given that reinsurance rates and premiums went up dramatically after the 2022 floods and how the cyclone pool seems to be doing an effective job with cyclones, is this an argument for a similar pool to cover floods?
“Consumers, I really want to make this point, are still covered by their insurance,” said Paddam. “It's more about whether the insurer is covered by the pool or not, so it won't affect consumers directly.”
He said where you draw the line with the cyclone pool’s coverage is “the line in the sand question.”
“If you have that period [that’s currently 48 hours], go too long, then there are other effects that weren't really generated by the cyclone and you end up in arguments about, is this cyclone generated or not cyclone generated?” Paddam said. “But, the shorter you have the period, the more the insurer is exposed to residual claims that come out of that.”
He said extending the pool to cover more of the flooding would be “a policy decision” and there are arguments for extending it and for leaving the duration where it is.
“What the pool has done is priced for a 48-hour period of cover,” said Paddam. “If it goes longer then the pool would have to charge more, it doesn't come for free.”
The Australian Consumers Insurance Lobby (ACIL) has suggested that the pool isn’t having much success carrying out its aim of improving the accessibility and affordability of insurance in cyclone prone areas. Australians in the north of the country - said ACIL in its submission to last year’s government review of the pool’s premium rates - still tend to pay much more for insurance than those in the south.
“Residents in Northern Australia should not bear a disproportionate burden while southern regions contribute nothing,” said chair Tyrone Shandiman. “Our submission calls for a more balanced approach that ensures all Australians share the risk and benefits of cyclone insurance.'"
Today, the government extended support for NSW communities impacted by the cyclone.
Should the cyclone pool be extended to cover floods? Should there be a separate government pool for flood damage? Please tell us your views below.
