Australia’s annual cyclone season is weeks away and with it the possibility of major claims challenges. However, for the second year, the insurance industry has the support of a fully operational Cyclone Reinsurance Pool and its $10 billion government guarantee.
Industry stakeholders, including some insurers and brokers, see the pool as a critical step towards easing insurance affordability issues in cyclone prone areas.
But how did the pool cope with its first major test - Cyclones Jasper and Kirrily in December and January? Industry stakeholders, including the Australian Consumers Insurance Lobby (ACIL) and Steadfast Group’s CEO Robert Kelly (pictured right), are pointing to serious unresolved issues.
“The impact of Jasper and Kirrily, and then the subsequent floods and the stopping of the claims at the 48-hour mark, has put a question over the efficacy of the cyclone pool in terms of what it will do for reinsurance pricing,” said Kelly at his giant brokerage’s FY24 results presentation last month. “In the first 12 months it helped dramatically but we have to wait and see what impacts that all means.”
One of the pool’s unresolved issues is whether it should cover claims beyond 48 hours after a cyclone ends. Currently, claims from households and small businesses for cyclone and related flood damage are only covered from when the cyclone begins until 48 hours after it ends.
Reports say much of the damage from Cyclones Jasper and Kirrily, that struck Far North Queensland, came from cyclone provoked flooding that continued well beyond the 48 hours. Reports say serious flood damage also impacted NSW and Victoria.
In April, a federal parliamentary hearing looked at the current limit. Some major insurers called for extending the 48 hours.
David Carter, CEO of RACQ Group, said pool cover should be expanded to seven days and also cover motor claims.
Andrew Huszczo, Suncorp Group’s appointed actuary with EGM Reinsurance, said seven days of cover after a cyclone is downgraded would be in line with other reinsurance arrangements. He also said modelling suggests this extension would not have much impact on premiums and costs.
James Fitzpatrick, chief technical officer for Allianz, said the existing cyclone pool is not designed to cope with floods. He said extending the time limit beyond 48 hours, rather than improving the pool’s ability to deal with cyclones, would dilute the pool’s benefits in northern Australia.
Allianz has repeatedly called for a separate government funded pool to deal with flooding.
In February, at the government’s 2022 flood inquiry, Allianz managing director, Richard Feledy strongly reiterated that call.
IAG’s George Karagiannakis told the cyclone pool inquiry that he was also concerned that extending the 48 hours would “effectively mean it is becoming a flood pool.”
IAG’s executive manager of government and industry affairs said the time extension would mean more losses and higher pool reinsurance premiums.
In its submission, the Australian Consumers Insurance Lobby (ACIL) 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 the submission, 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 (pictured left). “Our submission calls for a more balanced approach that ensures all Australians share the risk and benefits of cyclone insurance.'"
The cyclone pool started operating in 2022. All of Australia’s insurers with gross written premium (GWP) of $300 million or more joined the pool by December last year. Insurers with GWP’s under this amount must sign up by the end of 2024.
According to the Insurance Council of Australia’s (ICA’s) data hub, Cyclone Jasper produced 10,000 claims worth $377 million in damages. More than 25% of the claims remained unresolved, estimated to be worth $168 million.
Insurance Business has reached out to the ARPC for comment.
