The mandatory participation requirement for the cyclone reinsurance pool could see some policyholders paying more rather than achieving savings, Sure Insurance MD Bradley Heath has told a Senate committee hearing into the legislation.

“We propose that if an insurer for a particular property is able to charge less than the pool price then they ought to be allowed to do so, and retain the risk rather than using the pool,” he said.

“Additionally, insurers should also be prohibited from ever charging more than the pool price. Regrettably both of these safety nets have not been included in the pool design.”

Mr Heath said in Sure’s case a mandatory participation model without a no disadvantage test could “almost certainly” deliver price increase for many policyholders, given savings they have been achieving and figures publicly available about the pool so far.

Sure and RACQ Insurance told the committee today they are still yet to see the pricing for the pool, which will be administered by the Australian Reinsurance Pool Corporation (ARPC), and they would still be required to purchase separate reinsurance for those cyclone-related claims falling outside the scheme’s cover.

“We fail to see how being compelled to buy two reinsurance covers can equate to savings,” Mr Heath said.

RACQ is pushing for a longer time period of cover around cyclones, to capture more claims and the inclusion of motor, reducing the gaps to be filled with commercial reinsurance programs.

The Insurance Council of Australia (ICA) submission to the inquiry says savings from the pool will depend on reinsurance premiums charged, outcomes of renegotiation of existing commercial reinsurance arrangements and other “operational, compliance and frictional costs”.

“We are concerned that the estimated implementation costs are unrealistically low,” it says. “To utilise the potential savings that may be available through the reinsurance pool, insurers will need to invest in new systems, pricing algorithms and staff training.”

Australian Competition and Consumer Commission price monitoring will also add to compliance costs, it says.

Northern Australia Insurance Lobby Co-Chairman Tyrone Shandiman reiterated that the group wants the Senate to pass the legislation, with a review in 12 months providing the opportunity to make changes, while Strata Community Association also backed the legislation.

University of Melbourne Postdoctoral Research Fellow Antonia Settle told the committee the pool is a “blunt instrument” in addressing underinsurance and challenges facing low-income households in regions increasingly exposed to climate impacts.

“I want to draw attention to the fact that the unaffordability of insurance has rapidly become a national problem, and that this reflects the beginning of price realignment in real estate as climate change starts to be priced into the market,” she said.

A Shopping Centre Council of Australia (SCCA) submission seeks assurances that the ARPC won’t use funds built-up through the terrorism scheme to help fund cyclone pool costs. It also raises concerns over cross-subsidisation and says modelling should have been released along with the draft legislation.

“Our view is that the consultation process was not transparent in this regard and did not allow stakeholders to thoroughly examine the scheme or its prospective benefits and outcomes,” it says.

“This approach suggests that the scheme is not financially sound or justifiable, such that stakeholders cannot be assured that the policy approach is fit for purpose.”

The Senate committee is due to deliver its report by March 24.