Australian Reinsurance Pool Corporation (ARPC) is a public financial corporation established by the Terrorism and Cyclone Insurance Act 2003.
Since 2003, ARPC has operated a Terrorism Reinsurance Pool (terrorism pool) which provides general insurance companies (insurer customers) with reinsurance for commercial property and associated business interruption losses arising from terrorism.
From July 2022, ARPC commenced operating a Cyclone Reinsurance Pool (cyclone pool) for cyclones and cyclone-related flood damage. Insurers with eligible policies must join the cyclone pool.
What is reinsurance?
Reinsurance is insurance for insurers. Reinsurance is the practice whereby insurers transfer portions of their risk portfolios to reinsurers to limit their own exposures and claims. Reinsurance allows insurers to remain financially stable, particularly following a large event or series of events.
What risks do the pools cover?
The terrorism pool covers commercial and industrial buildings, mixed-use buildings with a floor space of at least 20 per cent used for commercial purposes, and high-value buildings with a sum insured of at least $50 million, whether used for commercial or other purposes.
Coverage includes fixtures, the contents within those buildings and associated business interruption. Eligible property also includes commercially owned infrastructure such as roads, tunnels, dams, railways, and pipelines as well as sites covered by a construction policy. Farms can also obtain cover if they hold insurance against business interruption.
The terrorism pool also covers declared acts of terrorism described as “chemical”, “biological”, “polluting”, “contaminating”, “pathogenic”, “poisoning”, or words of similar effect.
The cyclone pool covers household, residential and commercial strata, and small business policies. This includes:
- residential home and contents, including landlord insurance and farm residential cover
- commercial property policies with less than $5 million total sum insured across risks covered by the cyclone pool (property, contents, and business interruption) and
- residential strata, including mixed-use strata schemes, where 50 per cent or more of floor space is used mainly for residential purposes.
The cyclone pool has been designed to reduce insurance premiums for households, small businesses, and residential and commercial strata, with medium-and-high cyclone and related flood damage risk. The cyclone pool will do this by reducing the cost of reinsurance, as this can be a significant cost component of premiums for these policies.
When are the pools triggered to pay losses?
For the terrorism pool, ARPC’s Minister must officially announce a Declared Terrorist Incident (DTI) before the provisions within the Terrorism and Cyclone Insurance Act 2003 can be triggered. Once a DTI is declared, The TCI Act overrides terrorism exclusion clauses in eligible insurance contracts, enabling coverage of eligible terrorism losses arising from a declared terrorist incident.
For the cyclone pool, Australia’s weather agency, the Bureau of Meteorology (BoM), will observe when a cyclone event begins and ends.
The cyclone pool will cover claims for cyclone and related flood damage arising during a cyclone event, which lasts from the time a cyclone begins until 48 hours after the cyclone ends.