The government has created a reinsurance pool for cyclones and related flood damage. This is a financing mechanism that provides insurance for insurers. The pool allows insurers to transfer some of their risk to the government.
It covers household, strata, and small business property insurance policies. The pool operates Australia wide but its focus is on cyclone-prone areas, which are mainly in northern Australia.
The goal is to reduce the price of reinsurance, which is a significant cost component of premiums for these policies.
Since 1 July 2022, insurance companies have been able to voluntarily include eligible policies in the cyclone reinsurance pool.
This becomes mandatory from the end of 2023 for large insurers and the end of 2024 for small insurers.
This means insurers can have access to the pool to purchase reinsurance for certain types of risks related to cyclones and related flood damage.
The Australian Reinsurance Pool Corporation administers the cyclone reinsurance pool.
Read more about the design and operation of the cyclone reinsurance pool on the Australian Reinsurance Pool Corporation website.
In 2017, the Australian Government directed the ACCC to conduct a wide-ranging inquiry into the supply of residential building (home), contents and strata insurance in northern Australia.
We published the Northern Australian Insurance Inquiry final report in 2020, which detailed our market analysis for home, contents and strata insurance in northern Australia.
On 12 January 2022, the then Assistant Treasurer directed the ACCC to monitor prices, costs and profits relating to the supply of certain insurance products to evaluate the impact of the government’s reinsurance pool for cyclone and related flood damage.
See the terms of reference at Competition and Consumer (Price Monitoring—General Insurance Policies) Direction 2022.
The ACCC collects data and monitors insurance premiums to evaluate the impact of the cyclone reinsurance pool and assess whether savings are passed through to policy holders.
We report to the government and public about:
We monitor prices, costs and profits of insurance cover that relates to the destruction of, or damage to:
We monitor these factors before and after the introduction of the cyclone reinsurance pool.
Our functions in relation to price inquiries, price notifications and price monitoring are set out in part VIIA of the Competition and Consumer Act 2010.
As part of our monitoring role, we must provide at least one report each calendar year, starting with a first report in late 2022.
On 20 December 2022, the ACCC released its first report as required under the Competition and Consumer (Price Monitoring—General Insurance Policies) Direction 2022.
This report follows the start of the cyclone and related flood damage reinsurance pool on 1 July 2022.
At the time of publishing the first report, no insurer was yet using the cyclone reinsurance pool. The first report therefore:
Our future monitoring and reporting will expand as insurers join the pool.
Along with the first report, our reporting in 2023 will provide a benchmark that can be used to assess whether savings from the pool are being passed through to policyholders as insurers enter the pool during 2023 and 2024.
This will help assessments of whether the pool is delivering on its intended benefits.
Future reports may also look at relevant recommendations made in the ACCC’s 2017–20 Northern Australia Insurance Inquiry that can work alongside the pool to improve competition and affordability and accessibility of insurance in northern Australia.
See Insurance monitoring reports for a complete list of reports.