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Insurers to pay more for extended terrorism pool

A Treasury review has recommended continuation and expansion of the Australian Reinsurance Pool Corporation (ARPC) – but insurers will have to pay more.

The pool, set up in 2003 to tackle a global withdrawal of terrorism insurance after the September 11 2001 attacks on the US, is subject to a review every three years.

In 2014 the National Commission of Audit set up by the incoming Abbott government suggested there was scope for a “gradual Commonwealth exit” from the scheme, as terrorism cover markets were recovering.

But the Treasury report finds the opposite, saying while some cover is available in the private market, it falls well short of that offered by the ARPC.

It says that is “unlikely to change in the short to medium term”, and the scheme should remain in place, subject to future three-year reviews.

It should also be extended to include mixed-use and high-value residential buildings, the report says, while clarification is required to remove doubt over whether losses from chemical or biological attacks are covered.

Insurers will be expected to pay a higher price for the cover.

Premiums, which currently range from 2-12% of the premium, will rise to 2.6-16%, earning the ARPC an extra $40 million.

“The ARPC must generate sufficient premiums to cover its ongoing costs and ensure those who benefit from the scheme share an appropriate burden of the cost,” the report says.

It is also proposed that the maximum insurance industry retention be doubled from $100 million to $200 million, and that individual insurer maximum retentions be abolished.

ARPC CEO Chris Wallace has welcomed the report’s findings.

“It has been a long time coming, but it is a substantial piece of work,” he told insuranceNEWS.com.au. “The recommended expansion of the scheme would remove some uncertainties.

“I understand that premium increases are not what is being seen in the marketplace, but the magnitude is very small. Our net assets have been declining over the past few years, which is not a good place to be, and this will make our situation more sustainable.”

Insurance Council of Australia CEO Rob Whelan told insuranceNEWS.com.au the most problematic aspect for members is removal of the cap for individual insurers, which will hit larger companies. “We are not entirely happy with that.”

Meanwhile, former Australian and New Zealand Institute of Insurance and Finance CEO Joan Fitzpatrick has been appointed Chairman of the ARPC board for a further 18 months.

She first took up the role in January 2013.