The Federal Government’s cyclone reinsurance pool for northern Australia needs an exit strategy, Insurance Council of Australia (ICA) CEO Andrew Hall told a parliamentary inquiry.

ICA and Australia’s major insurers appeared on Friday before the House of Representatives Standing Committee on Economics, which is tasked with tracking how financial services companies are responding to Hayne royal commission reforms.

Mr Hall was quizzed by Deputy Chair Andrew Leigh on whether the pool would make much of a difference to those struggling to pay high insurance bills.

Dr Leigh’s “back of an envelope” calculations indicated a premium saving of about 5%, and he pointed out this limited relief would follow recent rises of 100% for some people.

Mr Hall said he preferred to wait for data analysis to provide more concrete figures, adding: “I think in Australia, if we do a reinsurance pool, whatever the design is it needs to be time-limited and needs to drive an incentive for building standards to be changed and improved.”

Insurers were also asked for their views on the pool concept but offered little in response as Treasury is currently consulting on the design of the scheme, which is scheduled to be up and running by July next year.

However, they did make clear that the pool would need to be accompanied by significant mitigation measures to reduce the underlying risk.

Mr Hall earlier told the committee that the general insurance industry is battling its most challenging circumstances in 20 years, despite Australia’s economic recovery following COVID-19 being “the envy of the world”.

“Unfortunately, not all sectors of the economy are performing as strongly, and the general insurance sector is enduring its most challenging circumstances for two decades,” he said.

“Insurer profitability over the 24 months ending March 2021 was down 64% on the preceding two years, and according to APRA the entire general insurance sector only made a profit of $19 million in the most recent March quarter, largely because of the impact of recent natural disasters.”

See Analysis.