A Federal Treasury-led taskforce examining the design of a northern Australia reinsurance pool has called for feedback by June 18 as it works toward having the program in place by the middle of next year.

The consultation paper released on Friday asks for input on whether insurer participation should be mandatory, how cyclone-related flood should be defined and whether storm surge would be included.

Other questions include how much risk should be ceded to the pool, whether an end date is necessary, how savings to policyholders will be monitored and what design elements should be included to encourage mitigation and avoid the pool leading to increased risk taking.

“By reducing reinsurance costs for high-risk properties, there is a risk that the reinsurance pool may encourage new construction in high-risk areas or to a standard that is vulnerable to cyclones and related flood damage,” it says.

“The Taskforce will consider options to address this, such as limiting eligibility.”

The pool, backed by a $10 billion annually reinstated guarantee, aims to provide a reduced reinsurance premium per property, with higher risk properties receiving higher discounts. The pool will be targeted at households, strata properties and small businesses.

Underwriters will be able to reinsure risks at a lower cost than in the private market as the pool will forgo a commercial profit margin and the government guarantee would mean that it wouldn’t need to have cash on hand to cover such rare events as 1-in-100 year cyclones, the paper says.

The paper says it would be to the advantage of insurers to switch as soon as practicable so they can offer more competitive premiums to customers, and they could otherwise risk losing market share.

“Providing sufficient lead time for insurers to plan and undertake the transition is important,” it says.

The Taskforce will develop advice for Government consideration once the feedback period has closed and after further consultation methods are completed, it says.

The consultation paper is available here.