After years of insurers fighting against a reinsurance pool for cyclone-prone northern Australia and various inquiries showing little enthusiasm Prime Minister Scott Morrison has embraced the idea in an outcome reflecting the impacts of recent catastrophes and the power of politics.

Northern Queensland politicians and business groups were never going to drop the ball on a reinsurance pool as prices have continued to soar and some sectors have struggled to gain cover.

“There has been a complete market failure,” Real Estate Institute of Queensland Townsville Zone Chairman Ben Kingsberry told a parliamentary committee inquiry this year. “I think government really needs to step in and do something about it, and that reinsurance pool certainly makes sense to me.”

Affordability issues gathered steam after Cyclone Yasi in 2011, gained momentum after Cyclone Debbie in 2017 and intensified again in 2019 when Townsville was inundated by flooding. Assistant Treasurer Michael Sukkar visited north Queensland in the wake of the floods and revived reinsurance pool investigations.

Last week, the Government announced the reinsurance pool for above the Tropic of Capricorn and also a $600 million mitigation commitment, to be overseen by a new National Recovery and Resilience Agency led by former NT Chief Minister Shane Stone. A pilot program for strata properties and a data-gathering Australian Climate Service were also announced.

Funding details are set to be provided in tomorrow night’s Budget, which may well be the last before the next Federal election, given it must be held by late May next year.

The northern state was crucial at the 2019 election, with Mr Morrison enthusing “how good’s Queensland” in his victory speech after his surprise win over Labor leader Bill Shorten.

Herbert, in the Townsville region swung to the Coalition last time and electorates in the north shape as critical. The Government has also looked to cross-bencher Bob Katter, who holds Kennedy, to shore up its position in the House of Representatives after Craig Kelly resigned from the Liberal Party this year.

Details of the reinsurance pool are still to be thrashed out by a Treasury-led taskforce, but ICA’s former Head of Risk and Operations Karl Sullivan says it should be designed to dovetail with mitigation measures that offer a longer-term solution and which also provide a pool exit path.

“It needs to be a short-term or a medium-term mechanism to get prices down for a core set of people while the real problem is tackled,” he told insuranceNEWS.com.au. “For every person who qualifies to go into the pool, there should be a plan by government on how they are going to get them out of the pool.”

Mr Sullivan says the pool has to be looked at in the context also of the government’s mitigation funding commitment, the creation of the new national resilience agency and other measures, after almost of a decade of relative inaction as problems have been growing.

“There is a lot going on around the outside of this pool,” he said. “It is not like they have announced a pool and said, that’s it, problem solved. They have actually looked at this in a more comprehensive way.”

Actual premium reductions from the pool and the degree to which it will encourage new market entrants remain uncertain. Just about anyone likely to be affected wants a seat at the table as the details are thrashed out by the taskforce over the next 12 months, suggesting many battles remain to be fought.

The Small Business and Family Enterprise Ombudsman, which has recommended a disaster pool that would capture risks across the country, has welcomed the pool announcement as a start.

“In the course of our Insurance Inquiry, we spoke to over 800 small businesses – about 12% of those were from Northern Australia,” Ombudsman Bruce Billson said. “That means there are still many small businesses out there experiencing difficulties with accessing necessary insurance coverage.”

The Financial Rights Legal Centre says the government would achieve better outcomes by providing direct subsidies to low-income households in high-risk areas, in line with an Australian Competition and Consumer Commission recommendation, and any taxpayer-funded scheme should assist people in high-risk regions all over Australia.

Steadfast CEO Robert Kelly told insuranceNEWS.com.au last year, when asked about the possibility of a cyclone pool, that it would be a “very brave government” that starts to specifically support certain risk areas.

“What do you do for the people that are suffering subsidence on the east coast when the big storms come, and what do you do for corporate Australia when they can’t get D&O (directors’ and officers’) cover,” he said.

“If you are going to throw a support blanket over the industry, how big a blanket do you throw?”

Whatever the drivers in relation to northern Australia, Mr Morrison also seems to have had an epiphany on the importance of widespread mitigation activity after endless inquiries over many years have promoted the value of improving resilience.

“[New resilience agency head] Shane was reminding me last night the Insurance Council of Australia says, as a nation we spend some 97 per cent on the clean-up and 3 per cent on mitigation,” he told the Townsville Chamber of Commerce last week. “Think about that. That’s not a good equation. That doesn’t add up. That has to change.”

ICA will be pleased Mr Morrison has listened to their input when it comes to increasing mitigation funding, even if he would rather listen to electoral voices when it comes disaster pools.