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'Wild exaggeration': detail of cyclone pool savings revealed

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Home and business owners in northern Australia can expect average premium savings of 15-20% when insurers join the cyclone reinsurance pool, according to modelling released today.

Financial Services Minister Stephen Jones told the previous Coalition federal government “deliberately misled” the public when it flagged reductions of up to 46% for homeowners, 34% for SMEs, and 58% for strata properties.

The scheme, which launches tomorrow, was supported by Labor but requests to see the modelling behind the Coalition figures were denied.

Now Labor has released actuarial analysis by Finity, based on premium data provided by five insurers to the Australian Reinsurance Pool Corporation (ARPC), which will run the pool.

The analysis shows average savings across the entire sample set (almost 200,000 properties across Queensland, Northern NSW, WA, and NT) as 8% for home, 14% for SME and 13% for strata. The figures increase to 19%, 17% and 15% respectively for northern Australia properties, and 38%, 28% and 18% for the worst affected properties.

“For home, a small number of policies currently paying the highest premiums (more than $10,000 for a $500,000 sum insured), the premium reduction can be in the order of 38%,” the report says, while warning that the sample size for high risk SME and strata was too small to provide reliable estimates.

Some low risk areas would “inevitably” see premium increases under the pool as there is a level of cross-subsidisation, the document says, indicating that some could see rises of up to 20%.

It also says that some smaller premium reductions may be difficult to observe “as insurers can make premium changes in this order of magnitude year-to-year”.

Mr Jones says the modelling proves the previous government inflated the expected level of savings in an effort to garner political support prior to the May federal election.

“These were wild exaggerations about what could be saved, and they must have known that,” he told today.

“The modelling we’ve released today is the same as what was available to the previous government.

“There will be some understandable disappointment in communities today, but bad news doesn’t get any better by sitting on it. We intend to be upfront and honest – if you are not it comes back to bite you.”

Mr Jones says the average savings predicted by Finity “are not nothing” and still make the scheme worth proceeding with.

But he says it is vital that work is also done to reduce the risk, including putting resilient infrastructure in place, and adhering to stricter building and land-use standards.

“Most of the answers are outside insurance, not inside,” he said.

Asked whether premium savings could be increased if the pool was not designed to be revenue neutral, Mr Jones says taxpayers money is better spent on resilience projects rather than by directly subsidising insureds.

And he says the pool needs to get up and running before any improvements can be considered.

“We will work with insurance agencies and all levels of government to ensure the cost of premiums is minimised,” he said.

“And we will work with local and state governments on mitigating the impact of severe weather risk in northern Australia.”

Insurance Council of Australia CEO Andrew Hall welcomes today’s release of data.

“Insurers have been concerned that consumer expectations around premium decreases were never going to be met through this scheme, so today’s release has provided transparency for the first time,” he said.

“Ultimately this data highlights that driving sustainable relief to people’s premiums will require long-term co-ordinated investment across a range of measures from all levels of government.

“That’s why the ICA and insurers have supported the Albanese Government’s annual $200 million commitment under its Disaster Ready Fund, and the Palaszczuk Government’s $741 million Resilient Residential Recovery package, co-funded by the Commonwealth.”

The Australian Consumers Insurance Lobby (ACIL) says the level of savings promised by the previous government is still needed “to deal with the issue of affordability and availability of insurance in Northern Australia”.

“Irrespective of the actions of the past government, the new government has a role to play in getting the cyclone reinsurance pool right for policyholders,” it says.

“ACIL is passionate about a review of the cyclone reinsurance pool after 12 months. It is clear [it] will need updates to ensure it is fit for purpose for consumers.”

The modelling is published on the ARPC website, along with initial premium rates and the reinsurance agreement.

ARPC says further consultation on premium rates will take place until July 31, with revised rates to be published on October 1.

“ARPC will undertake industry forums from July 2022, to assist insurers and reinsurers to transition to the cyclone reinsurance pool – which is compulsory for large insurers by 31 December 2023 and for small insurers by 31 December 2024.”

Click here to access the documents.