Cyclone pool a band-aid as more action needed: Suncorp
The Federal Government-backed cyclone pool offers a “band aid” solution to the rising cost of natural catastrophes and must be accompanied by resilience and mitigation measures, Suncorp CEO Steve Johnston says.
“Whether you believe in climate change, as we do, or put more recent events down to the normal cycles of weather, or just bad luck, it’s abundantly clear more needs to be done,” Mr Johnston said at an earnings results briefing.
“While we are working constructively with the Australian and New Zealand governments around their cyclone pool and EQC proposals, these initiatives are band-aid solutions that don’t address the fundamental issues.”
The cyclone pool administered by the Australian Reinsurance Pool Corporation officially began last month but large insurers have until the end of next year to place risks into the scheme.
Mr Johnston says it will likely be early next year before Suncorp begins putting risk into the reinsurance pool and starts to price accordingly, while the industry is dealing with expectations raised after politicians gave “quite over the top assessments” on possible savings before the federal election.
“We still haven’t finalised the design of it from our perspective and are still waiting for some outputs from the Government around it, but I would expect to see some element of it start to manifest itself early next calendar year,” Mr Johnston told insuranceNEWS.com.au.
“Northern Australia is a challenge from an underwriting perspective, we all know that, and there will be some benefits, that’s for sure, it is just a matter of quantifying what they will be.”
Suncorp is advocating for a four-point resilience and mitigation plan focused on improving public infrastructure, providing subsidies for private dwelling resilience, addressing inadequate planning laws and approval processes and removing inefficient taxes and charges from insurance premiums.
“By focusing on these initiatives, the underlying risk and affordability issues will be better addressed; the costs of repair and recovery that are currently borne by taxpayers will be reduced and we will have a viable insurance industry, now and well into the future,” Mr Johnston told the briefing.
Government involvement is also stepping up in New Zealand, where state-owned Toka Tu Ake EQC will from October 1 cover the first $NZ300,000 ($270,109) of damage caused by earthquakes, tsunamis, volcanic eruptions, hydrothermal activity and landslips, up from $NZ150,000 ($135,054) currently.
Suncorp managed 35 separate natural hazard events and around 130,000 natural hazard claims across Australia and New Zealand last year and topped its perils allowance by $101 million as a second consecutive La Nina contributed to record-breaking flooding.
The insurer has increased its natural hazard allowance for this year by $180 million to $1.16 billion reflecting changes to the structure of the reinsurance program and more elevated natural hazard experience.
Climate models are pointing to a possible third La Nina, but CFO Jeremy Robson says not all La Nina’s are the same, with the 2021 event “giving rise to quite a different experience” to that in the past financial year. The increased allowance doesn’t assume a second straight year of such severity.
“It is fair to say, if we had the same experience in FY23 as what we had in FY22, then the natural hazard allowance would be exceeded,” Mr Robson said in answer to a question at the analyst briefing.
