Cyclone reinsurance pool average annual losses would increase by $20-$35 million if the cover period was extended to seven days after an event, research requested by the Assistant Treasurer shows.

The scheme, overseen by the Australian Reinsurance Pool Corporation, provides cover from the time a cyclone begins until 48 hours after it ends, but some insurers have called for the period to be extended to 168 hours, or seven days.

ARPC last week released a report on the impacts of an extension, based on modelling provided by Finity Consulting and Risk Frontiers. It commissioned the analysis at the request of Assistant Treasurer Stephen Jones.

“The modelling indicates that the additional riverine flood risk from extending the coverage period will cost the cyclone pool an estimated average of $20-$35 million each year in additional claims costs, although the amount will vary widely from year to year,” Finity says.  

The additional cost is about 5% of the pool’s current expected annual claims cost.

An extension of the coverage period would increase the proportion of properties receiving subsidised premiums in all cyclone-affected regions, including southeast Queensland and northern NSW.

High risk properties would be subsidised through modest premium increases on a larger proportion of low-risk properties.

The report says across most regions, the number of consumers receiving premium increases would be greater than those receiving reductions, although most increases would be less than $5 on average, while those receiving reductions could see a benefit of at least $100.

“This is how the whole pool was designed to operate: to deliver the greatest benefit to the highest-risk properties and, therefore, the higher-risk properties end up paying premiums well below what they would otherwise be charged based on their level of risk,” the report says.

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