Clayton Utz partner Sophy Woodward says expanding the cyclone reinsurance pool to cover all natural disasters could be the best short-term solution to a looming climate-induced insurance affordability crisis.

Ms Woodward, who has expertise in natural disaster-related insurance disputes, says politicians’ recent intervention proposals would “put further pressure on insurance companies and may not help ease the rising cost of living”.

She says targeted initiatives are required to reduce risk and increase resilience, but these are long-term measures that “won't resolve the short-term problem of insurance affordability”.

“A better solution may be to expand the cyclone reinsurance pool to include all natural disasters,” she says.

“This would significantly reduce the cost of reinsurance and give immediate relief to exposed policyholders by removing the reinsurance profit margin and substituting a government guarantee, the cost of which is less than reinsurers’ cost of capital.”

Ms Woodward says such a pool would enable insurers to continue covering high-risk properties.

“Effectively, risks are shared across the entire Australian community. Participation in the pool is mandatory. This ensures the pool achieves the greatest possible premium reduction and enables it to operate cost-neutrally over time.”

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