ARPC’s 2023 Financial Outlook Report

New ARPC report suggests home insurance is becoming easier to obtain in Northern Australia

An analysis of online insurer quotes released today by Australian Reinsurance Pool Corporation (ARPC) suggests that general insurance availability is improving for people living in cyclone-prone regions across Australia.

The analysis focuses on the new cyclone reinsurance pool administered by APRC and is based on online quote data for home insurance provided by Finity Consulting, as part of ARPC’s financial outlook report (or FOR), which has been released for the first time today.

The FOR takes stock of how the cyclone pool affected the market for the financial year, ended 30 June 2023 and is available here.

While the report only covers six months of some insurers being members of the pool, the FOR also covers premiums paid by those insurers to ARPC, and they are consistent with ARPC’s earlier expectations.

 Other key messages from the first FOR by ARPC include:

• The financial outlook for the cyclone pool is largely unchanged since its commencement in July 2022. While the cyclone pool currently covers around half of all eligible properties, the premiums ceded to date are consistent with original expectations.
• Unless there is a significant change in circumstances, ARPC is proposing no material changes to be made to the overall level of cyclone reinsurance pool premium rates until more time has elapsed for experience to develop.
• The cyclone pool is designed to direct savings to those areas with the greatest cyclone risk, as those regions have a heavier burden needing relief. For example, Table 1.2 of the FOR shows how much cyclone pool premium can vary between Brisbane ($146 for home) and Townsville ($709). 
• Profit margins on the large number of properties in high-population, low-risk areas have been used to reduce premiums for those more lightly populated areas at considerably greater risk of cyclone damage.
• The FOR identifies two main risks to rising costs and premiums for the cyclone pool – inflation, and climate change (Section 1.7).
  • Building cost inflation over the year to 31 March 2023 was 11.4 per cent, higher than long term expectations. This could push total premiums up and could mean higher rates of underinsurance.  The good news is that Treasury expects inflation to return to the Government’s preferred inflation band by 2024-5 (see section 5.1.1)
  • Climate change could result in these possible outcomes:
    • poleward migration (meaning cyclones will be coming further south);
    • fewer storms, but ones that do more damage; and
    • rising sea levels and coastal inundation (section 5.2.1).

 Going forward

The FOR is now an annual publication from ARPC.  From 2024, the FOR will be provided to the Assistant Treasurer no later than 15 October each year and released publicly within 10 business days.

For media inquiries, please contact Alexander Drake, Head of Public Affairs on (02) 8223-6777 or [email protected]

Background on the cyclone pool

The cyclone pool was launched by APRC in 2022 and is intended to help make insurance more affordable and more available in areas with medium to high cyclone risk, in three classes of business – household, strata (residential and some commercial), and for small to medium enterprises (SMEs).