Cyclone pool cuts prices, but misses on capacity growth
The cyclone reinsurance pool has helped to ease premium pressure in high-risk areas of northern Australia but failed to attract new insurers to the region, according to the competition watchdog.
Home building and contents premiums in areas of medium to high risk fell 11% two years after the pool was launched in 2021, the Australian Competition and Consumer Commission says in its fifth and final report on the pool’s impact on home and contents, strata and small business insurance.
The ACCC found an 8% reduction in the average strata insurance premium per $100,000 sum insured, and a 24% fall in small business building and contents cover in areas of medium to high risk.
Small business premiums fell 47% in Karratha, 15% in Mackay and 12% in Townsville, and some insurers expanded their offerings to small business and strata clients.
Strata clients paying the highest premiums recorded the greatest reductions, with those in Townsville down 28%, Cairns 19%, Mackay 23% and Karratha 42%.
All eligible insurers have joined the pool and are passing on reinsurance rates set by the Australian Reinsurance Pool Corporation.
| Related article: Cyclone pool secures 37% premium savings |
Insurers’ profitability has improved, the ACCC says.
Five insurers pass the reinsurance premium direct to consumers, six allocate the rate mostly by postcode or region, and seven do a mix.
“There has been limited appetite from existing insurers to expand or increase their exposure overall due to the pool,” the report notes.
“Claims costs, inclusive of reinsurance costs, remain the largest driver of the cost of supplying combined home and contents cover in northern Australia and the pool was a key factor in the fall in reinsurance costs.”
More insurers now recognise mitigation work by householders and small business, but they have been slow to pass the benefits to policyholders, the ACCC says. Premium reductions for cyclone mitigation are generally small relative to the cost.
The federal government launched the pool in 2021 in response to concerns about insurance being unaffordable in northern Australia. It directed the ACCC to monitor the pool’s impact on prices, costs and profits for five years.
Find the report here.
From the latest Insurance News magazine: We take a tour around Suncorp’s Disaster Management Centre, and find out how it is reshaping catastrophe responses