Home / Local / Financial Rights says cyclone pool doesn't solve problems
10 May 2021
The Financial Rights Legal Centre has warned the reinsurance pool announced last week for northern Australia may not deliver significant premium reductions and offers no assistance for those exposed to natural catastrophes in other parts of the country.
“Any taxpayer funded scheme should apply nationally, not just in northern Australia. There are pockets of high natural disaster risk all over Australia,” Policy Officer Julia Davis told insuranceNEWS.com.au.
“People living in the Hawkesbury region of NSW can no longer afford flood insurance while consumers on the South Coast of NSW are experiencing huge increases to home insurance costs in the aftermath of the catastrophic Black Summer bushfires.”
The centre notes that the Australian Competition and Consumer Commission report into northern Australian insurance recommends against a pool and proposes direct subsidies to low-income households in high-risk areas.
The reinsurance pool may only reduce premiums by 3% depending on how the scheme is designed, while taxpayers bear the risk of the proposed $10 billion guarantee, it warns.
“It is a tenuous presupposition that insurers will in fact pass on these cost savings to homeowners,” Ms Davis said. “It would require stringent monitoring including an ongoing assessment of the reinsurance premium savings generated and the amount passed on to consumers in high-risk regions and nationally.”
The Federal Government says the pool, to come into effect next July, will be operated by the Australian Reinsurance Pool Corporation. Details will be determined by a Treasury-led taskforce.
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.
Prime Minister Scott Morrison says it’s hoped consumers and businesses could see savings of more than 10%, but the extent of the impact will depend on factors including the involvement by more participants in the marketplace.
The Insurance Council of Australia, which in the past has opposed a pool and stressed the importance of mitigation spending, has said it will work with the taskforce.
“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,” CEO Andrew Hall said last week.