The Cyclone Pool

The reinsurance pool for cyclones and related flood damage

Improving insurance affordability for northern Australia

The Government is implementing a reinsurance pool for cyclones and related flood damage, which will be backed by a $10 billion Government guarantee and cover household, strata, and small business property insurance policies. ARPC will operate the pool from 1 July 2022. The pool will operate Australia wide but target support to cyclone-prone areas, which are mainly in northern Australia.

Driving down premiums for cyclones and related flood damage

The pool will cover 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 when a cyclone begins and ends.

The 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.

Benefitting households, strata, and small businesses

The pool will cover household, residential strata, and small business property 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 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.

Coverage for small business marine property insurance policies will be included from 1 July 2023.

Insurers will be required to participate to maximise premium savings

Participation will be mandatory for general insurers with eligible policies. Large insurers will be required to join the pool by 31 December 2023. Small insurers will have to join by 31December2024. All insurers can voluntarily join from the commencement date. Policyholders will continue to have freedom to choose their insurer, and insurers will manage all claims.

Backing from a $10 billion Government guarantee

The reinsurance pool will be 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 pool to meet all its obligations.

The pool will charge premiums to insurers

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

The pricing formula will be finalised before 1 July 2022 and will use property-level data such as: geography, building characteristics, and mitigation. It will be developed in line with the principles that the 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 the industry. It will collect data to evaluate the impact of the reinsurance pool and assess whether the savings from the reinsurance pool are being passed through to policyholders.

Supporting mitigation and informing natural disaster planning

Over time, the pool will offer discounts for policies that cover properties that have undertaken cyclone and flood mitigation. Additionally, the ARPC will collect data through the pool that will help the Government to plan its response to natural disasters.

Insurer on-boarding: What you need to know