Federal government’s $10bn cyclone reinsurance pool to land as insurers negotiate

The federal government’s $10bn reinsurance pool is planned to take effect as listed insurers face renegotiating their cover in the wake of massive floods.

Tim Moores and Lucy Wise lost everything in the home they own in North Lismore after the worst flood on record hit the northern rivers town. Picture: Elise Derwin

Major insurers including Suncorp and IAG will be handed a commonwealth lifeline with new details of the federal government’s reinsurance pool outlined in the budget.

The funding, which had previously been announced, is set to start on July 1 as insurers renegotiate their reinsurance cover.

However, it would only cover cyclone and cyclonic flooding in cyclone-prone areas – or some 880,000 residential and small business property insurance policies in Northern Australia.

Recent east coast flooding – which would not be covered – have demonstrated the high cost from natural disaster to insurers, with losses expected to top $2.5bn.

Treasury has been allocated $3.2m over four years from this financial year to establish, oversee, and evaluate the reinsurance pool. The Australian Completion and Consumer Commission will receive $15.4m over the same period to prepare and conduct a price monitoring survey.

The ACCC survey will be aimed at “evaluating” whether Australian insurers pass on the savings from the reinsurance pool and what impact it has on pricing.

The Insurance Council of Australia has welcomed the reinsurance pool, noting insurers were under pressure but noting more needed to be done to address “sustainable inroads on premium prices” through investment in flood and cyclone mitigation measures.

The reinsurance pool is part of a set of measures in the budget to tackle the impact of flooding, including $2bn to support affected primary producers, small businesses and councils and a further $3bn provision to accommodate unannounced expenditure.

Lismore residents Lucy Wise and Tim Moores, whose home was rendered uninhabitable after the crisis, said floodwaters had only exacerbated pre-existing problems in the community of 43,000, with an urgent need for financial assistance in the budget.

While the government provided $1000 per adult in flood relief — a payment that tripled in extreme flood affected areas — Ms Wise said spending needed to focus on long-term support rather than short-term fixes.

An architect of the reinsurance pool, former regulator John Trowbridge, said more needed to be done to address “questions that are related to the climatic risks”.

“A big question of course is should this reinsurance pool, that’s arguably a step forward, should it be extended in some way to cover floods and if so how and how would the whole funding side of that work,” he said.

The $10bn pool will land just as listed insurers face renegotiation of their reinsurance limits for the coming years, with Barrenjoey equities analyst Andrew Adams noting both faced headwinds.