$10b fund’s critical flaw that could see Far North insurance premiums surge
A federal government scheme established to keep a lid on insurance premiums in the state’s north has spectacularly failed its first test.
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A federal government scheme established to keep a lid on insurance premiums in the state’s north has spectacularly failed its first test – due to fine print that means it only applies for 48 hours after a cyclone.
The government’s $10bn cyclone reinsurance pool – or insurance for insurers – was meant to lower premiums in Northern Australia.
But most of the weekend’s flooding in Far North Queensland came on Sunday and into Monday, and ex-tropical cyclone Jasper that brought the downpour was downgraded to a tropical low overnight Wednesday – so the $10bn insurance scheme had expired by Saturday.
Now insurers are likely to cop the brunt of the damage caused by Jasper due to the scheme’s critical flaw.
And Queenslanders already reeling from the devastating flooding from Innisfail to Cooktown could face higher insurance premiums.
Sure Insurance managing director Bradley Heath branded the reinsurance pool a failure that could result in higher premiums, while a peak advocacy body in Townsville called on the federal government to immediately reconsider the scheme’s design.
“Most of the damage will not be covered by the pool; it has been a failure of both policy and legislation,” he said.
Insurers would be forced to go to the open market for reinsurance, defeating the purpose of the pool and raising the prospect of higher premiums.
The severe limitation of the pool had been identified when it was introduced by the former Coalition government then implemented in mid-2022 but never acted upon.
Thousands of homes, businesses, and vehicles have been damaged or destroyed amid catastrophic flooding in Far North Queensland caused by record-breaking rainfall brought on by Tropical Cyclone Jasper.
Insurance stakeholders including the RACQ, the National Insurance Brokers Association and advocacy body Townsville Enterprise had repeatedly called for the 48-hour window to be lengthened to seven days as recently as late 2022.
Modelling by RACQ warned under the 48-hour rule nearly half of the nation’s 226 cyclones in the past 40 years would be only partially covered or not at all by the reinsurance pool.
RACQ Group chief executive David Carter said it had made its feelings about the 48-hour claim period well known.
“RACQ joined the Cyclone Reinsurance Pool and some claims will be covered by that,” he said.
“RACQ has a comprehensive reinsurance program in place, including quota share, to cover the claims arising from Cyclone Jasper that will not be covered by the cyclone pool.”
Townsville Enterprise chief executive Claudia Brumme-Smith said the government needed to immediately reconsider the legislation that excluded ongoing damage once the cyclone had weakened.
Financial Services Minister Stephen Jones assured consumers the 48-hour window would not affect their ability to claim against damages covered in their insurance policies.
People in the nation’s north regularly pay up to two-and-a-half times more than others due to their exposure to cyclones.
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