An overview of early 2023 developments in the Cyclone Reinsurance Pool including early participants in the Pool, expansion of policy coverage for northern areas, and the launch of the Disaster Ready Fund’s round one funding applications.
Allianz the inaugural customer of the Cyclone Reinsurance Pool
On 13 January 2023, the Australian Reinsurance Pool Corporation (ARPC) announced that Allianz Australia Insurance Limited had joined the Cyclone Reinsurance Pool (the Pool)1. The announcement marked a critical milestone in the progress of the Pool, with Allianz being the first major insurer to join the scheme since it kicked off in July 2022.
In a statement, Dr Chris Wallace, ARPC CEO commented:
'ARPC warmly welcomes Allianz as the inaugural customer of the cyclone pool. We look forward to working with Allianz to help lower insurance premiums and increase insurance affordability for cyclone impacted consumers.'
Allianz’s lead was shortly followed by the joinder of Sure Insurance brand to the Pool, announced on 18 January 20232, with Sure Insurance underwriting policies on behalf of their product issuers Liberty Mutual Insurance Company, Australia Branch, trading as Liberty Specialty Markets, and Pacific International Insurance Pty Ltd.
Allianz expands policy offerings in Northern Queensland
Tangible benefits of joining the Pool were demonstrated when Allianz announced on 20 February 2023 the expansion of its home and landlord insurance into areas across Northern Queensland and Western Australia. In a media release3, Allianz Managing Director Richard Feledy said:
'At Allianz, we believe that the accessibility and affordability of insurance is critically important. Given the increasing severity and/or frequency of extreme weather, coupled with rising inflation, the need for premium relief in communities exposed to cyclones and associated flooding is timely.'
The Allianz media statement also indicated that existing Allianz policyholders saw the benefit of adjusted premiums for renewals for policy periods commencing 1 January 2023 onwards, with those renewal notices distributed to customers from late 2022 onwards.
Disaster Ready Fund
The Federal Government has also announced $200 million per year spending through the Disaster Ready Fund. The Fund is the result of recommendations contained in the Productivity Commission Inquiry into National Disaster Funding in 2015. The Fund will help communities build resilience in cyclone and flood-prone areas by providing up to $1 billion dollars in funding over the next 5 years4.
The Fund replaces the Emergency Response Fund, which will terminate on 30 June 2023, and had previously provided up to $50 million per year for resilience projects. The Disaster Ready Fund will by comparison commit $200 million annually over the 5-year period.
Applications for round one of the Fund opened on 10 January 2023 and will close on 6 March 2023. Projects under the first round include5:
- Infrastructure projects including investment in grey infrastructure, blue-green infrastructure, hazard monitoring infrastructure and business case development for future infrastructure, including modelling; and
- Systemic risk reduction projects, including projects to enhance governance networks, projects that the build the capacity of business and communities to improve their preparedness and resilience, and projects that incentivize private investment in disaster risk reduction.
The Queensland Reconstruction Authority (QRA) is the lead agency coordinating Queensland’s application under the Fund, and will work with relevant stakeholders including state agencies, local government authorities and non-government organisations to submit funding requests. The QRA requested proposals by 13 February 2023, with ministerial endorsement expected by 17 March 2023.
ARPC revised initial premium rates
The ARPC released revised initial premium rates on 29 September 2022, following a period of consultation on the initial rates. The new rates came into effect on 1 October 2022. As a result of the consultation process and revision of the initial premium rates, a 10% reduction in premiums payable to the Pool was projected, reducing the premiums from $867 million to $776 million.
The actuarial report informing the changes to the premium rates noted that the reduction in the premium pool premiums was based on a number of key adjustments, including:
- Changes made to the WA / Pilbara wind risk based on insurer information and a review by AON, which suggested that the vulnerability curve in at least one of the models used overstated the risk. This also included a reallocation of suburbs in southern WA to lower wind risk bands;
- Changes to sum insured, construction type and number of storeys risk factor relativities for strata buildings;
- Other changes to relativity factors as a result of feedback from insurers, notably removing the excess relativity for combined home policies and a revised relativity for ‘Timber / Weatherboard / Hardiplank’ construction6;
- Adjustments to the non-insurance assumptions in the modelling.
The ARPC considered that the reduction in Pool premiums would ultimately result in lower premiums for consumers.
So, what’s next?
All major insurers are required to join the Pool by the end of 2023. Smaller insurers have until the end of 2024. The tangible effects of policy reductions and expansion of policy coverage into impacted areas will be a key area of development throughout 2023. We also await further details of the funding committed in Round 1 of the Disaster Ready Fund.
More about the Cyclone Reinsurance Pool
For more information about the Cyclone Reinsurance Pool, check out our previous articles –“Action must be taken” – Senate Committee reports: Cyclone Reinsurance Pool pushes forward, and A barometer on savings: Cyclone Reinsurance Pool kicks off with newly-released modelling.
1 See the ARPC statement here.
2 See the ARPC statement here.
3 Please note the Allianz media release previously published here is no longer accessible as at the time of publication.
4 See more from the National Emergency Management Agency here.
5 You can find out more information about round one here.
6 You can see the full report here.