The cyclone reinsurance pool has started delivering lower premiums for some consumers but savings have been offset by other cost rises, the Australian Competition and Consumer Commission says.

Extreme weather events worldwide, hardening of broader reinsurance markets and rising building material and labour costs remain price drivers, the ACCC says in its third annual cyclone pool monitoring report.

Deputy chair Catriona Lowe says the commission’s engagement with the community has reinforced the importance of more affordable premiums across northern Australia, where cover remains much more expensive than in the rest of the country.

“We continue to hear consumers say the cost of insurance for their home or small business has become prohibitive, forcing them to risk underinsurance or go without insurance at all,” she said. “We are optimistic that the pool can achieve some premium savings and benefits for consumers at higher risk of cyclones, but the pool, on its own, won’t solve acute affordability concerns.”

The third report comes as all large insurers have joined the pool and small insurers remain on track to meet a December 31 deadline.

The ACCC found 27% of combined home and contents policies in medium- to high-risk areas had recorded a premium decrease when renewed after the consumer’s insurer joined the pool. By comparison, only 12% had a price cut when renewed before the insurer joined.

For strata, 16% had a decline on renewals after the insurer joined, compared with 10% where the insurer had not joined the scheme.

The impact on quotes for new customers was also assessed, with the report finding home premiums quoted in higher cyclone risk regions had an average decrease of 8%-15% per $100,000 sum insured across different levels of wind risk. A 24% drop was observed in the highest wind risk band.

In contrast, the ACCC found in lower cyclone risk regions, quoted prices increased by up to 14%, suggesting the pool is helping to reduce the price for some consumers in medium- to high-risk regions.

Information provided has shown signs of insurers modifying their approaches to cyclone risk underwriting, including on practices such as exposure limits, embargoes and underwriting guidelines.

Of the four insurers that had ongoing embargoes specifically related to cyclone risk before the pool, Allianz is the only one to have lifted it for home since joining the scheme, in a decision affecting more than 100 postcodes. 

Two have maintained embargoes and one has indicated it will review its embargo once it has joined. The combined current embargoes affect 260 postcodes, of which half are in Queensland. 

“Some insurers are seeing early signs of, and the potential for, greater competition as a result of the pool,” the ACCC says. “However, it is not yet clear if, and to what extent, any such changes will lead to more availability of insurance for consumers in cyclone-prone regions.”  

Strata owners remain concerned about availability as insurers seem unwilling to offer cover or aim to reduce their exposure to properties that are larger, older, near the coast or in remote locations.

The ACCC says it believes there remains “significant merit” in many of the recommendations in its Northern Australia Insurance Inquiry, completed in 2020, which looked at improving the way insurance markets work for consumers.

The cyclone pool monitoring report has been released several months earlier this year than in 2022 and 2023, to allow key findings to inform the work of the federal government’s Insurance Affordability and Natural Hazards Risk Reduction Taskforce.