Insurance relief for cyclone-hit

Insurance premiums for homeowners in cyclone-prone areas of Northern Australia will nearly halve following the implementation of a taxpayer-funded $10bn reinsurance pool.

A $10bn reinsurance pool will lower the premiums for individuals and businesses in the cyclone-prone parts of Australia. Picture: AAP

Insurance premiums for homeowners in cyclone-prone areas of Northern Australia will nearly halve following the implementation of a taxpayer-funded $10bn reinsurance pool from the middle of next year.

Over 880,000 residential, strata and small business property insurance policies against cyclone and related flood damage in the north of the country are expected to be covered by the reinsurance pool, the government said.

The $10bn pool, which was announced in May 2021 and once legislated will come into effect from mid-next year, is expected to reduce insurance premiums by up to $2.9 billion for eligible policies over 10 years.

Although the scheme technically covers all of Australia and its territories, Scott Morrison said “this is about making Northern Australia even more resilient and liveable”.

Homeowners in Northern Australia, where the cost of flood insurance is highest, are expected to benefit from up to 46 per cent premium discounts, strata properties as much as a 58 per cent discount, and small and medium-sized businesses up to a 34 per cent discount.

It will be mandatory for insurers covering eligible cyclone risk protection to participate in the reinsurance pool, with an 18-month transition period for large insurers and an additional 12 months for small insurers.

Treasurer Josh Frydenberg said “as a critical integrity measure, price monitoring by the ACCC will provide transparency on how the benefits of the pool are being passed onto policyholders”.

For the first three years of the scheme, the taxpayer will cover all of the cost of eligible cyclone and related flood damage claims above the policyholder excess as a way to encourage sign-up. After that, the excess costs will be split.

The $10bn pool will be topped up annually as required.

Assistant Treasurer Michael Sukkar released draft legislation for the reinsurance pool in December, and the law will be introduced into parliament in February 2022.

Following consultation, Mr Sukkar noted “key changes to ensure the reinsurance pool delivers on its objectives”.

“The government has committed to expanding the pool to provide coverage for small business marine property insurance from 1 July 2023, at which time a Treasury review will be undertaken,” he said.

“We are also ensuring that strata properties will more significantly benefit from the pool.”

Agriculture Minister David Littleproud said reducing the cost of insurance premiums would encourage economic development in Northern Australia.

“This will save households money and give them greater financial freedom and it will give businesses access to more capital to invest and grow,” Mr Littleproud said.