Allianz to join cyclone reinsurance pool by January

Allianz Australia has become the first insurer to announce that it’s joining the cyclone reinsurance pool, advising that it will transition its householder portfolio into the Federal Government-backed scheme by the start of January.

The transition of residential strata and small business property will take place during next year, Allianz says in a submission to the Federal Parliament Joint Select Committee on Northern Australia.

“During 2023, Allianz also expects to look at options to grow market share in Northern Queensland and Western Australia, which will inject greater competition into these markets,” the insurer says.

Large insurers are required to place their cyclone-related risks into the pool by the end of next year, while smaller firms have an additional 12 months. The pool, run by the Australian Reinsurance Pool Corporation, was launched at the start of July, but no insurers have joined to date.

Allianz says its analysis, based on rates published by the ARPC on October 1, indicates that average premiums to be offered to existing customers exposed to cyclone and related flooding risk will be around 6% lower than premiums that would have been offered if it had not joined the pool, comparable with modelling conducted by the ARPC.

The reduction in premiums resulting from the pool itself will be more impactful for regions highly exposed to the cyclone and flood risks, with average impacts of around 9% in Northern Australia and up to 30% on average in some regions.

The submission says the pool is designed to be revenue neutral to the government over the long term, which will limit its ability to reduce premiums to all customers experiencing affordability challenges, while it also won’t help those affected in regions further south, such as with this year’s floods.

“Allianz remains concerned about the affordability of flood insurance for property owners who won’t benefit from the CRP as currently designed,” it says.

Queensland-based RACQ says it is concerned that the pool will fail to meet the expectations of its 300,000 members in the north, even after examining more specific information released by the ARPC in recent months, and the pool needs a redesign if there is a serious intent for it to work properly.

“We still cannot see how the pool will drive deep and widespread premium reductions in northern Australia,” it says in its submission to the committee.

“We are concerned that any benefits will be more than offset by affordability pressures that are already pinching from building inflation, rising claims costs and growing climate impacts.”

RACQ says the Government should immediately work to improve the pool through new consultation with individual insurers operating in the north, and should set its desired level of premium reductions so insurers can consider necessary changes to achieve objectives.

The insurer has urged the committee to challenge the “non-negotiable” policy parameter that the pool must be budget-neutral over time, and says it should explore ways that Government subsidisation of the pool or directly of homeowners may improve insurance accessibility and affordability.

The insurer also says motor should be added and the claims period extended to seven days, rather than 48 hours after a cyclone is downgraded, as the short time adds to the pool’s complexity and uncertainty.

“This will force RACQ to purchase additional cyclone reinsurance cover from the global market to ensure that ex-tropical cyclones with a long duration do not leave us dangerously exposed,” it says.

“This type of ‘spill over’ cyclone cover is untested in the global reinsurance market and reinsurers will certainly add a premium to the cost of this cover to account for the uncertainty.”

The Australian Consumers Insurance Lobby (ACIL) says the implementation of the reinsurance pool has been “somewhat disappointing”, with consumers given the expectation when it was announced that benefits would apply from July, while previously announced savings won’t be delivered.

“The delays, along with failure to release rating models means that today, consumers are still no closer to understanding the impact of the cyclone reinsurance pool on their insurance policy,” it says.

ACIL says there should be a focus on extending the pool to marine on time from next July, and a review should look at ways to remodel the pool to enhance savings for consumers.

“Version one of the reinsurance pool was never meant to be the perfect and forever model that ARPC would adopt,” it says.

The submission also suggests ARPC’s role could ultimately be expanded to other areas of market failure, such as for flooding, bushfire and storm surge. Market failures have also affected the amusement, leisure and recreation industry, it says.