The cyclone pool is designed to lower insurance premiums for homes (including strata) and small businesses with high risk of damage due to cyclone and related flood, by reducing the cost of cyclone reinsurance, which is a significant component of premiums for these policies.

ARPC is responsible for administering both the Cyclone and Terrorism Reinsurance Pools.

No. The cyclone pool is a reinsurance arrangement between insurers and ARPC.

Yes. Participation is mandatory for Australian general insurers with eligible cyclone pool insurance contracts as per the TCI Act. While there are a number of exceptions (listed below), insurers operating in Australia must join the cyclone pool and may incur financial penalties if they do not.

The following insurers can elect whether to join the cyclone pool:

• Insurers with less than $10 million cyclone pool eligible GWP for the most recent financial year
• Lloyd’s underwriters under the Insurance Act 1973 (Cth) and
• Unauthorised foreign insurers under the Insurance Regulations 2002 (Cth).

• Insurers with GWP of $300 million or more for the householders class of direct business (as defined in APRA GPS001) must join the cyclone pool before the 2024 calendar year.
• Insurers with GWP of under $300 million for the householders class of direct business (as defined in APRA GPS001) must join the cyclone pool before the 2025 calendar year.
• Exempt general insurers, Lloyd’s underwriters and unauthorised foreign insurers may join the cyclone pool at any time.

To join the cyclone pool, insurers must sign a Reinsurance Agreement with ARPC. This is a generic agreement, required for consistency across the industry, and cannot be amended by insurers.

Home, residential and commercial strata, and small business policies. This includes:

• Residential home and contents, including landlord insurance and farm residential buildings*
• Commercial property policies with maximum sum insured of $5 million or less across risks covered by the cyclone pool (property, contents, and business interruption) and
• Residential strata, including long and short-term strata rental and mixed-use strata schemes, where 50 per cent or more of floor space is used mainly for residential purposes.

*A note on Farm Pack policies
The cyclone pool covers home building insurance contracts which means ‘a building used, or intended to be used, principally and primarily as a place of residence, whether by the insured or another person’ as set out in the regulations. This requires the individual circumstances of each building and what it is being used for or intended to be used for to be assessed by an insurer to determine whether it falls within the scope of the cyclone pool.

Whilst insurance contracts relating to a farm business are expressly excluded from the cyclone pool, insurance contracts relating to home buildings located on a farm and their contents remain covered by the cyclone pool. A building may have commercial items within it and still be a home building for the purposes of the cyclone pool as long as the building is mainly and chiefly being used or intended to be used as a residence. For example, a family home on a farm may be used and intended to be used ‘principally and primarily’ as a place of residence even if some produce or equipment is stored in the premises.

Further coverage questions can be addressed by reviewing the Regulations and the Reinsurance Agreement, or by contacting the cyclone pool underwriting team at [email protected]

No. An insurer is obliged under the TCI Act to cede all cyclone pool insurance contracts policies from their entire book of business for remittance and reporting to ARPC and will not have the option to self-select which policies are covered and which are not.

Insurance that covers properties with owner occupied, short-term and/or long-term rental apartments are included in the cyclone pool where:

• the insured is a body corporate and
• at least 50 per cent of the floor space is residential or the commercial portion of the total policy sum insured is less than $5 million.

Section 8B(3) of the Terrorism and Cyclone Insurance Act 2003 provides a definition of a pool insurance contract that includes the building and contents of a strata or community title development where:

                              (i)  the insured is the body corporate for a strata or community title development; and

                             (ii)  at least 50 per cent of the total floor space of the units in the development is used wholly or mainly for residential purposes.

The Explanatory Memorandum provides further clarification stating:

• “Building and contents cover for strata title and community title developments are eligible for cover by the reinsurance pool and not subject to a maximum sum insured test, where at least 50 per cent of floor space of units in the development is used wholly or mainly for residential purposes and the insured is the body corporate.” (Paragraph 1.59)
• “Strata arrangements that do not meet the 50 per cent threshold may still be eligible, subject to the maximum sum insured test (Paragraph 1.67).” The maximum sum insured test is currently $5 million.

These points apply to short-stay accommodation or holiday rentals that are located on a strata or community title development and are insured by a body corporate under a strata or community title insurance policy rather than a business property insurance policy.

Whether a unit that is located on a strata or community title development, and that unit is used for short-stay accommodation or holiday rentals, is considered residential for the purposes of the 50 per cent floor space threshold, depends on whether that lot is used wholly or mainly for residential purposes. The Act does not define residential purposes, and this provides flexibility for insurers in implementation.

Short-stay and holiday rental insurance policies including those that cover Airbnb’s, that are not part of a policy insuring a body corporate, are treated the same as business property insurance policies for commercial accommodation (e.g., traditional B&Bs, hotels, resorts, motels, caravan parks) and are eligible subject to a $5 million sum-insured limit. 

Example 1:

A building with a total sum insured of $40 million is made up of 25 per cent commercial activities (cafés, clothes shops etc.) and 75 per cent residential accommodation on a permanent and short-stay basis. The property is insured by a Body Corporate. This policy is likely to be an eligible cyclone pool policy because it is mainly residential and insured in the name of a Body Corporate.

Example 2:

A building with a total sum insured of $3.5 million is privately owned and insured (not a Body Corporate) and is 100 per cent Airbnb. This property is likely eligible as a business under the $5 million threshold.

Example 3:

A building with a total sum insured of $25 million is privately owned and insured (not a Body Corporate) and is 60 per cent Airbnb accommodation and 40 per cent shops. This property is likely ineligible as the building insured is not a Body Corporate and the total sum insured is over $5 million.

Example 4:

A building with a total sum insured of $85 million that is owned and insured by a hotel. This property is likely ineligible as the building insured is a commercial hotel and the total sum insured is over $5 million.

Insurers have the option to transfer into the cyclone pool using a staggered approach, for example by brand or by class of business, subject to the deadlines specified above. ARPC is working with insurers to assist smooth entry into the pool.

Yes. ARPC’s Cyclone Reinsurance Agreement will respond to all cyclone pool eligible losses in accordance with the TCI Act and the Regulations. All eligible cyclone risks are covered under the cyclone pool, however, Insurers are not precluded from obtaining additional reinsurance from the private market for any retained risks.

No. Insurers are not required to publish the cyclone reinsurance premium or display the premium on insurance policy documentation. However, the ACCC will have an ongoing price monitoring role focused on what insurers are charging policyholders.

ARPC will validate the premium submission when insurers submit premium returns. ARPC will also conduct insurer customer audits.

ARPC has released, via a Notifiable Instrument, a list of postcodes where, in its opinion, the risk of eligible cyclone losses is so small as to be negligible (view here). For the purposes of applying the exception to joining the cyclone pool, an insurer should calculate its total GWP for all cyclone pool insurance contracts excluding policies located in the postcodes in the list provided.

Where the resulting GWP is less than $10 million in the most recent financial year, the insurer may apply the exception and not be required to participate in the pool. Insurers must notify ARPC of their intention to apply the exception and must perform the test every year.

If you are interested in joining the pool, we would be pleased to meet with you to explain the onboarding process. Please contact our Underwriting Team via [email protected].

ARPC will set premium amounts that insurers will be required to pay under the Reinsurance Agreement. Insurers will continue to set their own premium rates for their policyholders, and these will be monitored by the Australian Competition and Consumer Commission (ACCC).

Insurers who have entered into an Agreement with ARPC may request access to detailed reporting and pricing documentation. Please contact our Underwriting Team via [email protected].

Item 5B(4)(b) of the Insurance Regulations 2002 (Cth) provides cover under home insurance for items that are usually located in the building or at the site but are still insured under the insurance contract when not located at the site.