The Cyclone Reinsurance Pool (cyclone pool) commenced on 1 July 2022 for residential, strata and small business property insurance policies.
What is the purpose of the cyclone pool?
The cyclone pool is designed to lower insurance premiums for households and small businesses with high cyclone and related flood damage risk by reducing the cost of reinsurance, which is a significant cost component of premiums for these policies.
What is the role of ARPC?
ARPC is responsible for administering the Terrorism and Cyclone Reinsurance Pools in line with the Terrorism and Cyclone Insurance Act 2003 (TCI Act).
Do consumer policyholders have to join the cyclone pool?
No – the cyclone pool is a reinsurance arrangement between insurers and ARPC.
Who should join the cyclone pool?
Insurers with eligible cyclone risks.
Do all insurers have to join the cyclone pool?
Some insurers are not required to join the cyclone pool. The following insurers have the option not to participate:
- General insurers with total gross written cyclone premiums of less than $10 million for a calendar year prescribed by the regulations (exempt general insurer)
- Lloyd’s underwriters under the Insurance Act 1973 and
- Unauthorised foreign insurers under the Insurance Regulations 2002.
Is it compulsory to join the cyclone pool?
Yes – If an insurer meets the premium threshold they must join the cyclone pool – they may incur penalties if they do not.
When do insurers have to join the cyclone pool?
Insurers with Gross Written Premium over $10 million (for eligible householders, small business, and strata) must join the cyclone pool (not including regions ARPC has specified as exempt by notifiable instrument).
Insurers with Gross Written Premiums of $300 million or more (for the householders class of direct business as defined in APRA GPS001) must join the cyclone pool before 31 December 2023.
Insurers with Gross Written Premiums of under $300 million (for the householders class of direct business as defined in APRA GPS001) have until 31 December 2024 to join the cyclone pool.
How do insurance companies join the cyclone pool?
To join the cyclone pool, insurers will have to sign a Reinsurance Agreement with ARPC.
Can insurers choose which risks to cede to the cyclone pool?
No – an insurer is obliged under the reinsurance agreement to cede all “eligible” 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.
What classes of business are covered by the cyclone pool?
- all domestic property wholly or mainly residential (Home and Contents & Landlord’s). No sum insured limit
- Small Medium Enterprise (SME) – Maximum AUD $5 million sum insured limit
- residential (50 per cent or greater where occupancy is split with commercial). No sum-insured limit
- commercial – Max AUD $5 million sum insured.
Do insurers have to transfer all business covered on the same day?
Insurers will have the option to transition into the cyclone pool using a staggered approach through separate brands and by class of business. ARPC will work with insurers to assist in a smooth transition to into the cyclone pool.
Can insurers set their own reinsurance premium rates?
No. ARPC will provide rates to insurers and they will have to pay this premium to ARPC. Insurers will continue to set their own premium rates for their consumer policyholders.
Can an insurer enter into other reinsurance agreements?
Yes – however, ARPC’s cyclone reinsurance agreement will respond before any other reinsurance contract. All eligible cyclone risks are covered under the cyclone pool. Insurers are not precluded from obtaining additional reinsurance from the private market for any retained risks. This ensures all risks held by insurers can have appropriate reinsurance arrangements.
Do insurers have to disclose cyclone premium rates?
No – insurers are not required to publish the cyclone reinsurance premium or display the premium on insurance policy documentation. However, the Australian Competition and Consumer Commission (ACCC) will have an ongoing price monitoring role focused on what insurers are charging consumer policyholders.
How do insurers know if they have calculated ARPC rates correctly?
ARPC will validate the premium submission when insurers submit premium returns. ARPC will also conduct insurer customer audits.