Home / Analysis / Reinsurance pool: is Government preparing to dive in?
15 March 2021
Rumours are swirling that there might be a significant announcement on insurance in northern Australia in the upcoming Federal Budget, and some are predicting it’ll involve a reinsurance pool.
insuranceNEWS.com.au has no inside knowledge on the soundness of such speculation, but it’s a timely opportunity to recap on the reinsurance pool issue and how it has developed in the last couple of years.
The affordability and availability of insurance in northern Australia has been a concern for decades, and prices continue to rise at an alarming rate.
Insurers – and many reviews and inquiries – previously pointed out that the problem is simply a reflection of the increased risk in the flood and cyclone prone north, and the only long-term way to address it is through mitigation.
Insurers want governments to push more money towards making communities in the north more resilient. If they do this, and reduce the risk, then premiums will naturally follow.
Other mechanisms have been put forward over the years – a reinsurance pool or direct government subsidies among them.
But insurers fear that these will mask the risk signal given by premiums, and encourage inappropriate development, such as homes built on floodplains.
For a long time, Allianz stood alone as an industry proponent for a reinsurance pool. Mitigation and better land use planning is all well and good for the long term, they argued, but what about people suffering right now?
And so things remained for many years, until a subtle but important shift in 2019.
In November of that year Assistant Treasurer Michael Sukkar called industry representatives to Townsville for a summit.
Insurers emerged having agreed to investigate the feasibility of a pool. Crucially Allianz was no longer a lone voice, with IAG asserting that it “saw merit” in the probe.
Mr Sukkar spoke passionately about the need for urgent action, and suggested he wasn’t going to rely on the findings of the Australian Competition and Consumer Commission (ACCC), which was in the midst of a detailed three-year inquiry on the issue.
“I understand that time is of the essence here. I think people are sick of reviews and committees and reports – this sort of endless cycle of navel-gazing at the issue," he said.
But since then, we’ve not heard much more from the Government.
Two significant inquires have finished in the meantime, the ACCC’s and a small business ombudsman probe into SMEs’ ability to source affordable cover.
The ombudsman recommended the Australian Reinsurance Pool Corporation be expanded to provide reinsurance for all natural disasters for commercial property insurance.
The ACCC however, says that if governments do wish to intervene then direct subsidies are a better bet.
If there is a significant announcement in the Budget, currently slated for May 11, it’s anyone’s guess what it will be.
The ACCC report should carry significant weight. But, taking Mr Sukkar’s previous comments on board, the Government won’t necessarily do what it recommends.
Whatever happens, the one thing insurers and residents of the north will be hoping for is a bit of clarity.