Consultation on cyclone reinsurance pool premium rates
21 June 2024
Australian Reinsurance Pool Corporation (ARPC) is in the process of reviewing the current (2022) Cyclone Reinsurance Pool (cyclone pool) premium rates and is considering minor changes which would be applicable from 1 April 2025. As part of this review, ARPC is inviting feedback on the current and proposed cyclone pool premium rates.
The main change being considered is the introduction of mitigation discounts on Wind premium rates for eligible Strata policies to improve incentives to reduce and mitigate risk through reduced reinsurance premiums.
Purpose of the 2024 premium rate review:
This purpose of the 2024 premium rate review is to ensure that cyclone pool premium rates continue to meet the legislative objectives as set out in the Terrorism and Cyclone Insurance Act 2003 (TCI Act):
- To ensure that, over the longer term, premiums are sufficient to cover or offset claims and expenses including any payments made under the Commonwealth guarantee.
- In medium to high cyclone risk areas, to keep the premiums as low as possible while maintaining incentives to reduce and mitigate risk.
- In lower cyclone risk areas, to keep premiums at levels comparable to what would be charged by other reinsurers.
Proposed changes to existing premium rates:
The analysis in progress supports that the premium rates (as set in 2022) continue to meet the above objectives. As a result, the 2024 changes to cyclone premium rates being considered are generally minor. For a detailed description of the proposed changes to existing premium rates, see the consultation document.
Proposed introduction of Strata mitigation discounts:
ARPC is considering introducing mitigation discounts on Wind premium rates for eligible Strata policies. The discount incentivises mitigation actions against structural damage from high wind loads and losses from water ingress caused by wind driven rain. The proposed discounts have been developed through a research partnership with James Cook University – Cyclone Testing Station and reflects the estimated risk reduction of the mitigation activities. Discounts will be reviewed over time as claims data becomes available. The consultation document shows the mitigation activities which are being considered to qualify for a discount.
Request for submission
ARPC is inviting feedback on the current and proposed cyclone pool premium rates. Written submissions should be sent via email, to [email protected] by the close of business Friday, 26 July 2024.
Following the consultation period, ARPC intends to release the new premium rates, when an updated Premium Rate Assessment Report will also be published.
For media inquiries, please contact Alexander Drake, Head of Public Affairs and Communications 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, for eligible policies in three classes of business – household, strata (residential and some commercial), and for small to medium enterprises (SMEs).