The Australian Reinsurance Pool Corporation (ARPC) has released a new report that delves into its cyclone pool and its findings in the years since its establishment.
Since early 2023, Australia's Cyclone Reinsurance Pool, managed by the ARPC, has started providing cyclone-related insurance coverage, expanding its role beyond terrorism risk management for the first time since its inception two decades earlier.
Established initially in response to the withdrawal of terrorism insurance following the Sept. 11, 2001, attacks in the United States, the ARPC was designed to maintain insurability for terrorism losses on commercial properties.
The introduction of cyclone coverage in 2022 marked a significant expansion of its mandate, reflecting growing concerns over climate-related natural disasters and rising insurance costs.
Cyclone risk has increasingly impacted affordability and accessibility of insurance in northern Australian regions, primarily north of the Tropic of Capricorn. High cyclone-prone areas, particularly coastal communities, continue to experience higher premium burdens compared to other regions.
To evaluate the cyclone pool's effectiveness, the Australian Competition and Consumer Commission is tasked with monitoring its performance by analyzing data from insurers, consumers, and other market participants.
This monitoring aims to determine whether premium reductions associated with the cyclone pool are reaching policyholders in targeted areas.
In May 2024, ARPC released its own analysis, comparing home insurance premiums from before and after insurers began using the cyclone pool. According to ARPC’s findings, insurance quotes in cyclone-affected communities have decreased since the pool's implementation.
Premium quotes in regional centers such as Broome, Townsville, Proserpine, and Mackay were up to 38% lower for home insurance coverage compared to rates prior to the pool's existence. Small business insurance quotes in these same locations also experienced an average decline of 38%.
Other areas, including Cairns, Ingham, and Cape York in Far North Queensland, saw average reductions of up to 22% for home insurance and 24% for small businesses.
Data from ARPC suggests that areas experiencing the highest cyclone risk are benefiting most from premium savings.
According to figures presented in the ARPC’s report, cyclone pool premiums vary significantly by location, with home insurance cyclone coverage in Brisbane averaging $146, compared with $709 in Townsville, located approximately 1,350 kilometers north of Brisbane.
Throughout 2024, three separate parliamentary inquiries examined issues related to insurance affordability and availability, including responses to major flood events in 2022, climate change impacts on premiums, and the cyclone pool’s operation. All three inquiries have assessed the effectiveness of the cyclone pool and considered potential adjustments to its scope and implementation.
Outside of Australia, the UK has two notable reinsurance pools that seek to cover various risks through a collaboration of multiple insurance companies.
The first is Pool Re. Established in 1993, it offers reinsurance against losses from terrorism-related events and was created in response to the inability of the insurance market to provide affordable terrorism coverage after significant incidents.
The second, Flood Re, was established in 2016 and is a joint initiative between the UK government and insurers to make flood insurance more affordable and accessible, particularly for properties in high-risk areas.
African Union members also established African Risk Capacity (ARC) in 2012. The pool provides parametric insurance to member countries against extreme weather events and natural disasters, aiming to improve disaster response and resilience.
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