The Insurance Council of Australia (ICA) says the industry will work with a Treasury-led taskforce on the design and operation of a cyclone-region reinsurance pool that will come into effect from July next year.

“Insurers have worked hard for many years in northern Australia to keep premiums affordable and coverage available, however today’s announcement acknowledges that there are costs driven by some cyclone risks that are significant,” CEO Andrew Hall said today.

“The industry has done considerable work on the key fundamentals of a public reinsurance scheme, and if properly designed and implemented a reinsurance pool can put downward pressure on premium costs.”

As reported in a Breaking News alert earlier today, Prime Minister Scott Morrison says the Government is providing a $10 billion guarantee for the reinsurance pool, which will cover cyclone and related flood damage above the Tropic of Capricorn.

The Government estimates more than 500,000 residential, strata and small business property policies will be eligible to be covered and that premiums across the north will reduce by $1.5 billion over 10 years.

Assistant Treasurer Michael Sukkar says premium reductions will be driven by a number of factors.

“What we are very pleasantly surprised about, just today, is that two national insurers have already indicated to us that they will now enter the market, so those sorts of things go to pushing premiums even lower,” he said at a press conference in Cairns.

Insurers have in the past mostly opposed a reinsurance pool, calling for funds to be spent on mitigation and other measures, but the industry participated in a process to revisit the issue following the Townsville flooding in 2019.

The Government’s decision comes after the Australian Competition and Consumer Commission three-year insurance inquiry last year recommended against a pool and said if governments do want to provide immediate affordability relief they should consider direct subsidies.

RACQ CEO David Carter says while the announcement today is good news, a reinsurance pool must be well-designed and part of a broader package to offset the price pressures in the disaster-prone north.

“We’ve long been concerned about the affordability of insurance premiums in the north, and while this is a great start we look forward to working with the Government on the details,” Mr Carter said.

Suncorp CEO Steve Johnston also says the company has already been engaged in constructive discussions with the Government and will fully support the work of the taskforce charged with designing the new scheme.

“Last month I was in Cairns and Townsville and heard first-hand how critical it is that companies like Suncorp, all levels of government and communities work together to find solutions to improve the affordability and accessibility of insurance,” he said.

The Government today also committed $40 million on a pilot program to start next year that will make older strata buildings more resilient to extreme weather events.

Strata Community Association President Andrew Chambers says unaffordable premiums have put enormous financial pressure on owners, and some have not been able to obtain insurance at all.

“We look forward to seeing the details of both schemes and how it will address the availability issues,” he said. “We are hopeful this is the first stage of addressing the wider issues around strata insurance affordability with other issues such as statutory taxes also being reviewed.”

IAG CEO Nick Hawkins says the Government’s measures are an important step amid climate trends.

“We know we’re going to see more frequent and intense extreme weather events, particularly in northern Australia, so it’s critical people, businesses and communities can access affordable insurance so they can get back on their feet as quickly as possible,” he said.

Australian Small Business and Family Enterprise Ombudsman Bruce Billson says the reinsurance scheme will make a significant difference in the country’s north, although barriers still exist for SME insurance coverage in other parts of Australia.

The ombudsman’s insurance review last year recommended the Australian Reinsurance Pool Corporation remit should be extended to provide reinsurance more widely for all natural disasters for commercial property insurance.

“My office is ready and willing to work collaboratively with the Government, relevant agencies and the insurance industry towards making essential insurance products affordable and accessible for small businesses across the country,” Mr Billson said.