The cyclone reinsurance pool has failed to achieve some of its goals since launching in July 2022, the Australian Competition and Consumer Commission says.

While there have been large reductions to premiums in the highest-risk areas, insurance remains expensive for many consumers and prices are generally rising in most parts of the country, according to the commission’s annual monitoring report.

Average home and contents premiums in medium to high cyclone risk areas have fallen 11%. For properties with low risk and no chance of cyclones, premiums have increased by 4% and 7% respectively.

One of the pool’s aims was to encourage insurers to expand in or enter northern Australia, but this has not happened.

“We have found that availability of insurance has been relatively unchanged with the pool’s introduction. No new insurers have entered northern Australian markets, and there has been limited appetite from existing insurers to expand or increase their exposure overall,” the report says.  

“There have been some smaller changes involving insurers lifting cyclone-specific embargoes and changing underwriting controls and exposure limits. However, these changes have not been substantial.”

The commission “heard through our stakeholder engagement that insurance availability and choice remains a big concern, particularly for strata owners, small businesses and people living in vulnerable situations”.

The report says the pool has also missed its goals around encouraging private resilience and risk mitigation efforts.

“Insurers could be doing more to use the pool, as it was designed, to incentivise households to implement cyclone risk reduction measures. In addition, we found insurer communication to consumers about the impact of private mitigation on retail premiums is limited.”

The report acknowledges the impact on premiums in areas with higher cyclone risk, but adds: “There continues to be a range of non-cyclone-related factors that together are acting to sustain very high premiums. It therefore appears unlikely that the pool, on its own, can deliver the necessary affordable premiums for consumers in Australia’s cyclone-risk regions.”

Non-cyclone factors include rising building material costs and labour inflation.

“The influence of these costs is driving the premium rises that we are seeing more broadly, and dampening the benefits of the pool for consumers in medium- to high-risk cyclone areas.”

The Insurance Council of Australia says the report highlights the need for risk reduction.

“The most effective way to lock in longer-term insurance affordability is to reduce underlying risk, which requires government action and is a top advocacy priority for the industry,” a spokesperson told insuranceNEWS.com.au.

See the report here.

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