Federal Treasury needs to talk with leading insurers to understand what would encourage greater participation in the northern Australia market before it embarks on detailed design work for the proposed cyclone reinsurance pool, the National Insurance Brokers Association (NIBA) says.

A summary of NIBA’s submission to a Treasury consultation says brokers and policyholders want greater choice in a more competitive market, leading to price relief for clients. Brokers are reporting “extreme difficulty” in gaining quotes for property and related risks and pricing at high levels when cover is available.

NIBA CEO Dallas Booth says, before serious design, modelling and costing is undertaken, Treasury should meet privately with the leading insurance companies, probably in a commercially confidential manner, to determine factors and design elements that would encourage them to return to northern Australia.

“Once you know that you can then start thinking about, ‘can we design a reinsurance product that is likely to achieve that outcome’,” Mr Booth told insuranceNEWS.com.au.

“At the end of the day, you can’t force companies to be in north Queensland, you have got to find ways of making it attractive for them to be there.”

NIBA says unless that information is known, any model for a reinsurance pool may well fail to gain the results brokers and property owners are seeking.

The Government has committed to a $10 billion guarantee but, the submission notes, it has not committed to funding the pool from revenue or other sources.

“Therefore, it may well be a challenge to significantly reduce premiums in northern Australia, or to make insurance more affordable for those not currently able to insure their property,” NIBA says.

Mr Booth says there should be a triennial review of the pool, in line with the approach taken for terrorism cover provided by the Australian Reinsurance Pool Corporation (ARPC).

Submissions to the Treasury discussion paper closed on Friday, with issues raised including whether the pool should have an end date, which could potentially be tied to an incentive for mitigation measures.

The Financial Rights Legal Centre says the pool should not have an exit date and, as a permanent part of the insurance market, it could operate alongside measures to empower consumers and encourage mitigation.

With climate change impacts, it’s not clear the Government will ever be able to step away from assisting people affected by cyclones and other extreme weather, whether through preventative market intervention or direct natural disaster funding support, it says in its submission.

“Other methods of ensuring the scheme is meeting its objectives in terms of mitigation and improved planning and building should be built into the scheme, rather than a fixed exit date,” it says.

Financial Rights says transparency on the components that make up premiums is needed and reforms should allow consumers to contest premiums and assessments of their risk levels.

Insurers should be required to provide written responses when questioned on premium rises and Australian Financial Complaints Authority rules could be changed to allow premium complaints, including when mitigation hasn’t been recognised.

Financial Rights also supports an independent assessment process to verify mitigation action taken that should result in premium reductions.

The recently formed Northern Australia Insurance Lobby (NAIL), co-chaired by Margaret Shaw and Tyrone Shandiman, says consumers in the region should pay no more for their cover per dollar value insured compared to policy holders in other parts of Australia with similar natural disaster risk.

“The eligibility criteria for the reinsurance pool should extend to as many policyholders as possible,” it says. “Design and pricing should be easy for the ARPC and insurers to implement, and easy for consumers to understand how they can continue to reduce their premiums.”

NAIL suggest the Australian Prudential Regulation Authority could be responsible for price monitoring, and it anticipates a long lifespan for the pool.

“Given the losses due to bushfires, flood, hail and other natural disasters in other parts of Australia, it would not be surprising for this reinsurance pool to be expanded at some point in the future and any set exit date moved,” it says.