Cairns insurance: How a reinsurance pool could work

Far Northern insurance brokers are both sceptical and hopeful that the promised $10B reinsurance pool would actually reduce premium costs.

FAR Northern insurance brokers are both sceptical and hopeful that the promised $10B reinsurance pool would actually reduce premium costs.

Announced prior to the federal budget, the proposed pool would have a $10B guarantee and is hoped to slash premiums that are crippling homeowners in the Far North.

But brokers don’t know how the much anticipated pool would actually work or whether it would deliver reductions that would dent premiums.

One Cairns insurance industry insider said he was “sceptical” of the plan that would come at a “huge cost.”

Sean Lord from Lords Insurance Services says the pool will need significant involvement from state and local governments.

Another, Sean Lord of Lords Insurance Services, was restrained in his outlook for the pool, and said it needed significant involvement from local and state governments.

“We don’t know really know what it is going to do, they haven’t really told us what will happen in North Queensland,” Mr Lord said.

“It is a good thing, we have been crying out for years.

“But I can’t see it making much of a difference; I won’t be holding my breath.”

The reinsurance pool, a grouping of insurers that provide partial or complete coverage to other insurers, could follow the model used by the Australian Reinsurance Pool Corporation.

The ARPC was created in 2003 in response to the US September 11 attacks to provide cover for eligible terrorism losses.

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The Northern Australia reinsurance pool would cover cyclone and associated risk in home, strata and small business insurance policies.

Mr Lord said that savings generated by the pool could be diluted by the sheer spread of residences.

“My thought is that it will be spread across Northern Australia; it could be $100-$200 per home, which won’t do anything.”

And until the pool in unveiled next July, the Far North faces a losing battle against the South East to attract insurers.

“We don’t have the population to pay the claims,” Mr Lord said.

“If we have a million dollar claim in Cairns and one in Brisbane, insurers are going to see that they can get back their money quicker down south.

“Home and contents and strata insurance (issues are) rife at the moment.”

The Tully home of Julie Reis whose premiums tripled to $13,496.

The struggle of homeowners to meet their insurance costs was brought to light by Tully single mum Julie Reis, whose premiums tripled to $13,496.

Sam Godfrey - Roberts of FNQ Insurance Brokers in Cooktown said until the pool took effect, insurance holders were reeling under premium price hikes.

“The pool is long past due,” Mr Godfrey-Roberts said.

“Premiums went up 40 per cent, it is unsustainable, and insurers are pulling out of the market.

“Stratas are one of the main areas that have been hit, they are looking at $100,000 for cyclone excess

“Our clients that were paying $20,000 two years ago are paying $80,000 plus $100,000 in excess; it is making it very difficult to pay their premiums.

“Non insurance and under insurance is a massive issue in Far North Queensland, especially in Cooktown.

“At one stage there was not an insurer who would use insure.”

If the pool follows the ARPC model, insurers would enter a treaty agreement and pay a quarterly premium, which feeds into the pool of money used to cover claims.

ARPC funding comes from a five layers that culminates in a Commonwealth guarantee.

“The government will have to work through things over the next 12 months,” Mr Godfrey-Roberts said.

“I think the reason for the time frame is that there is a lot of technical work to be done.”

The pool will be backed up by a $40 million investment to upgrade old strata buildings more resilient against extreme weather events.

The Insurance Council of Australia has also called for State and Local government involvement.

“Governments at all levels need to look at other impediments to lower premiums, including

the elimination of State insurance stamp duties and levies, improving resilience standards

in building codes and land planning decisions, and lifting investment in mitigation

infrastructure and household resilience programs,” ICA CEO Andrew Hall said.

Originally published as Cairns insurance: How a reinsurance pool could work