Estimated premium savings set to be delivered to consumers by the Federal Government’s cyclone reinsurance pool have dropped after recalculations based on new data.
The pool, run by the Australian Reinsurance Pool Corporation (ARPC), was launched on July 1 with a $10 billion government guarantee in an effort to assist with insurance affordability issues in the north of the country.
It will enable cheaper reinsurance for cyclone and cyclone related flooding, and hopes to encourage more insurer competition in the troubled market.
As insuranceNEWS.com.au has reported, the previous Coalition government flagged projected savings of up to 46% in home, 34% for SMEs and 58% for strata.
Following the federal election the Labor Government released different figures based on analysis by Finity. This showed average savings (note average, not “up to”) in the highest risk areas of 38% for home, 28% for SMEs and 18% for strata.
Last month, however, the analysis was updated after insurers provided more data.
Finity’s report now shows average savings in the highest risk areas of 32% for home and 13% for SMEs. There is insufficient data to show an equivalent figure for strata.
“The premium reductions presented… should not be directly compared to the previous report because the underlying dataset which this analysis is based on is different,” the report says.
An ARPC spokesman told insuranceNEWS.com.au the changes in the expected savings have been driven by extra data sets provided by insurers during the extension of the consultation period.
“The significantly more detailed dataset has enabled us to more accurately assess what the anticipated savings for consumers will be,” the spokesman said.
“The revised extent of the savings remains very substantial.”
An industry source told insuranceNEWS.com.au that while some homeowners would see savings significantly higher than the average 32%, they would be relatively few in number.
Most would see savings more like 10% or less, which could easily be wiped out by annual premium increases, the source said, leading to “dissatisfaction” and the illusion that the pool has had no impact.
The Australian Consumers Insurance Lobby (ACIL) says its detailed analysis of the latest report shows reductions in premium rates in some key areas.
“ACIL support any revisions to premiums that will provide a reduction in costs to consumers in Northern Australia,” Chairman Tyrone Shandiman said.
Mr Shandiman says the overall premiums savings estimates can be confusing, although ACIL does believe savings equal to the previous government’s predictions are required.
“I think this is way too hard to quantify until people see their bill – premium rates have increased over the past few years and the differing terms used by various governments of “up to” or “on average” also makes understanding savings murky.”
ARPC CEO Chris Wallace was quizzed at a Senate Estimates hearing last week.
Queensland Labor Senator Nita Green said “people have had enough of being lied to” about the pool, and suggested it could be 2025 before savings flow through to consumers.
The pool gives large insurers until December 31 next year to have all cyclone-risk reinsurance contracts in the pool, while small insurers have until December 31 2024.
Dr Wallace told the hearing he hoped it would not be that long, but confirmed that no insurers have yet joined the pool.
He says insurers are facing “a large, complex change” leading to “some delays”.
“One of the challenges for insurers is they have to unwind or remove their existing reinsurance programs.”
There is industry speculation that global reinsurers are about to increase prices and/or reduce appetite in Australia.
Dr Wallace told the hearing that the pool is “committed to delivering a long-term stable outcome”.
“From my perspective, I would say that we’re the only part of the global and Australian insurance and reinsurance industry that’s talking about stabilising and reducing prices at the moment.”
The Federal Parliamentary Joint Select Committee on Northern Australia will on Friday (Nov 25) hold a one-day hearing into the cyclone reinsurance pool to consider changes needed for the scheme to operate more quickly and effectively in reducing premiums.
The latest version of the Finity report is available here
The Hansard from Senate Estimates is available here