Doubts cast over promoted cyclone pool benefits

Details released to date on the cyclone reinsurance pool cast doubts on its potential to deliver promoted savings while underwriters may remain unwilling to become involved in the market, North Queensland Insurance Brokers Director Ron Bellert says.

The Federal Government has said the scheme could deliver premium savings of up to 46% on domestic home policies in the north, plus up to 58% savings on strata and up to 34% for SMEs. Benefits delivered will hinge on reinsurance pricing details still to be released.

“We don’t have the modelling yet but based on what we have seen, I would find it very difficult to see how that is going to occur,” Mr Bellert told the National Insurance Brokers Association (NIBA) convention yesterday.

Mr Bellert says the move to individual risk-based pricing has fuelled premiums in the north, driving the need for a catastrophe pool to “put the brakes on” while longer-term mitigation measures are developed and introduced.

But he warned the more narrowly focused the pool, and the fewer the people contributing, the harder it will be to achieve pricing reductions, while underwriters may also be reluctant to be involved given potential issues and scrutiny.

Mr Bellert told the Brisbane event that northern regions are probably the “first cabs off the rank” to experience the market pressures, but southern areas are likely to be increasingly affected by risk pricing trends and impacts that go beyond the cyclone-targeted cover in the proposed pool.

Legislation introduced into Federal Parliament last week included some changes made after consultation on a draft bill. The changes include allowing cover for mixed use strata buildings where up to 50% of the floor space is commercial. Previously the proposed limit was 20%.

A NIBA submission lodged last year on the draft bill had estimated savings to be delivered to policyholders could be around 10-15%, based on details available at that time and before the government had provided more information on the expected benefits.

The submission also warns the pool doesn’t sufficiently allow for the extensive damage caused in the north by ex-cyclones as they move across the country.

“Many properties in these areas face increasingly high premiums as a result of flood risk, however the reinsurance pool is unlikely to provide any relief for those who reside in these areas, as the flooding does not usually occur until after the proposed ‘damage period’ has finished,” the submission says.

In Federal Parliament, the cyclone reinsurance bill has been referred to the Senate Economics Legislation Committee for review. A report is due by March 24.