Driving down premiums for cyclones and related flood damage

The cyclone pool covers cyclone and related flood damage. This includes wind, rain, rainwater, rainwater run-off, storm surge, and riverine flood damage caused by a cyclone.

Australia’s weather agency, the Bureau of Meteorology (BoM), will observe the date and time when a cyclone begins and ends, and in some cases re-intensifies. Based on the BoM notification, ARPC must then declare the start or end of a cyclone event.

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 – this is known as the cyclone event period.

Benefitting households, strata, and small businesses

The cyclone pool covers home, strata, and small business policies. This includes:

• residential home and contents, including landlord insurance and farm residential cover.
• residential strata, including mixed-use strata schemes (where 50 per cent or more of floor space is used mainly for residential purposes); and
• commercial property policies with $5 million or less total sum insured across risks covered by the pool (property, contents, and business interruption).

Insurers are required to participate to maximise premium savings

All mandated insurers have joined the cyclone pool within legislated timeframes. Participation is mandatory for general insurers with eligible policies who meet the GWP threshold. Other general insurers, Lloyd’s underwriters and unauthorised foreign insurers may join the cyclone pool at any time. Policyholders will continue to have freedom to choose their insurer, and insurers will continue to manage all claims.

Backing from a $10 billion Government guarantee

The cyclone pool is supported by an annually reinstated $10 billion Government guarantee. Any shortfall in reserves built up over time will be paid for through the Government guarantee.

If the $10 billion guarantee is likely to be exceeded by a single cyclone event or series of cyclone events within a single year, the Government will increase the guarantee to support the cyclone pool to meet all its obligations.

The cyclone pool will charge premiums to insurers

The cyclone pool is funded by charging reinsurance premiums to insurers that are consistent with the expected claims and operating expenses for the pool.

The pricing formula uses property-level data such as geography, building characteristics, and mitigation. It has been developed in line with the principles that the cyclone pool will:

• be cost-neutral to Government over the longer term
• lower the reinsurance cost for most policies with medium-to-high exposure to cyclone risk
• have minimal impact on policy premiums for lower cyclone-risk properties and
• maintain incentives for risk reduction and offer discounts for properties that undertake mitigation.

The ACCC will monitor insurer premiums to ensure savings are passed through to policyholders

The Australian Competition and Consumer Commission (ACCC) has been directed by the government to monitor pricing of insurers as a consequence of joining the cyclone pool. It will collect data to evaluate the impact of the cyclone pool and assess whether the savings from the cyclone pool are being passed through to policyholders.

Supporting mitigation and natural disaster planning

The cyclone pool offers premium discounts for home and strata policies that have undertaken cyclone and flood mitigation activities. Over time, mitigation discounts will also be offered for SME policies. Additionally, ARPC will collect data through the cyclone pool that will help the Government to plan its response to natural disasters.