Insurers have given diverse views to a federal parliamentary committee hearing on whether the cyclone reinsurance pool should cover flooding related to events beyond a current 48-hour limit. 

The parliamentary Joint Select Committee on Northern Australia resumed its inquiry into the government-backed scheme with a hearing in Brisbane on Friday, as the current risk season concludes and after Cyclone Jasper in December delivered the pool’s first major test. 

Suncorp Group Appointed Actuary and EGM Reinsurance Andrew Huszczo said extending cover to seven days after a cyclone has been downgraded would bring the pool into line with other reinsurance arrangements and be simpler administratively, while modelling suggests an extension would have a relatively small impact on premiums and costs. 

“We are comfortable with 48 hours; we would prefer it to go to seven days,” he told the committee. 

RACQ Group CEO David Carter said a budget neutrality policy setting for the pool should be challenged and opportunities for subsidisation explored, with pool cover expanded to a seven-day period and motor also included. 

Allianz Australia argued the current time limit should remain in place and flood should be covered through a separate arrangement, drawing on overseas models that have operated successfully. 

Cyclone Jasper hit northern Queensland in December and caused little initial wind damage, but the following flooding led to a catastrophe, with losses reported by the Insurance Council of Australia (ICA) reaching $296 million. 

Most claims have not been covered by the reinsurance pool as the flooding fell outside the eligibility period that ends 48-hours after a cyclone is downgraded, based on Bureau of Meteorology advice. 

Allianz Chief Technical Officer James Fitzpatrick said extending the time limit to take account of more flooding effectively moves the claims area away from cyclone-prone regions and would have a dilution effect on pool benefits in northern Australia. 

“In our view, extension of this will not deliver savings to high-risk customers and is counter to the policy intent of improving affordability in these areas,” he said. “Allianz does not see the existing cyclone pool design as fit for purpose for a flood pooling mechanism.” 

QBE Insurance Australia Chief Underwriting Officer Andrew Ziolkowski said the impact of any time extension on premiums and scheme costs would need to be the subject of further study, but QBE previously supported considering a change. 

“We felt the 48-hour clause was worthy of further analysis and consideration and we still think that should be part of any further work to analyse the effectiveness of the pool going forward,” he said. 

IAG EM Government and Industry Affairs George Karagiannakis says a longer time frame would mean more losses and higher pool reinsurance premiums. 

“Extending the 48 hours does effectively mean it is becoming a flood pool,” he said. “I think we need to look at the holistic solution to flood affordability. It comes back fundamentally to risk.” 

Many more people would be affected if the pool was not only focused on the cyclone-prone area, raising customer equity issues around the location of people who experience flooding, he said. 

IAG said since joining the reinsurance pool last November, it has provided average premium relief of about 17%, while in more extreme risk cases there have been 40-50% reductions. 

ICA CEO Andrew Hall says the pool is still in its infancy and another summer and Australian Competition and Consumer Commission price monitoring will provide better understanding. 

“Given the loss rate we run at in northern Australia and the fact that the Government isn’t subsidising this pool, it is hard to see how any changes to the 48-hour rule would really in effect provide any relief from a premium perspective,” he said. “But it is something that could be modelled probably once this pool has been operation for another season or more.” 

Mr Hall said inflation impacts on rebuilding costs in regional areas are eroding benefits from the pool and may outstrip improvements consumers may otherwise have seen.  

“The cost of rebuilding and materials, for example, outside the capital cities has gone up enormously and insurers are now needing to price for that rather than cross-subsidise it,” he said.  

The committee inquiry held its previous hearing in November 2022 and released an initial report in March last year. A review of the pool legislation is also scheduled to report after July 1 next year. 

The Australian Reinsurance Pool Corporation told the committee today it has collected about $582 million in premium this financial year to date, with estimated claims of $181 million, including $83 million related to Jasper and $94 million for Cyclone Kirrily.