Allianz Australia says a government-supported cyclone reinsurance pool would be an “effective and efficient” way of reducing the cost of property insurance in northern Australia.

In a submission to the Northern Australia Insurance Premiums Taskforce that puts the Sydney-based insurer at odds with its industry peers, Allianz says an appropriately designed pool would assist “property owners… in a way that would not cause undue inconvenience to policyholders or disruption to insurance markets”.

Insurers that have made submissions on the taskforce’s August interim report have mostly joined with the Insurance Council of Australia in mounting a strong case against the Federal Government’s options of a reinsurance pool or a mutual insurer.

The insurers favour a government-financed mitigation program to strengthen homes in cyclone-prone areas, arguing that any other solution will not solve the base problem of under-strength domestic buildings.

They say this approach would be far cheaper and would not expose the Commonwealth’s balance sheet.

But Allianz says a reinsurance pool supported by the Government would reduce the cost of cyclone reinsurance and cut premium differentials.

It says by setting a cap on the cover provided by a pool – probably on a “per-event” basis – the Government’s exposure would be limited.

“For example, a per-event cap of $1.5 billion would have covered the insurance losses associated with all the medium to high-severity cyclones [that affected] northern Australia for the period for which reliable data exists, with the exception of 1974’s Cyclone Tracy.”

Allianz says many lower-severity cyclones would not trigger cover by a reinsurance pool.

“Thirteen of the 25 cyclones since 1975… resulted in total insured losses of less than $50 million.”

Allianz does not support establishment of a mutual insurer, saying it is neither practical nor feasible.

Addressing the Government’s desire to make its financial support for any insurance scheme as temporary as possible, Allianz falls into line with the rest of the industry, saying the Government should help improve the cyclone resilience of properties.

“Ultimately, it is the cost of insurance claims that drives the price of insurance, and this is evident in insurers’ current pricing structures that result in houses built to current building standards being charged about 20% less than those that are not.”

Allianz says the premium differential between houses built to higher standards and older houses could be used as an incentive for mitigation, and the reinsurance pool could also be made a temporary measure, “with a life tied to government mitigation assistance”.

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