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Cyclone reinsurance pool on track for July: Sukkar

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The Government-backed Northern Australian cyclone reinsurance pool is on track to start in July, with details likely to be released next year shortly before legislation is introduced into Parliament, Assistant Treasurer Michael Sukkar said today.

Mr Sukkar says Treasury officials have examined international examples and liaised with local stakeholders in making critical decisions about the design of the pool.

“We have landed on a model that is sustainable, is going to deliver measurable and significant premium reductions, and hopefully, and I am very confident, will create greater competition in a pretty difficult market,” he told the Insurance Council of Australia (ICA) Annual Industry Forum today.

Mr Sukkar says there are still some decisions to be taken, with further consultations to take place with a key stakeholder group before details are finalised, paving the way for the parameters to be released more widely.

“I want to give them the breathing space they need to get that work done, so I would expect it would be next year prior to introducing the legislation,” he said.

A Federal election is due to be held by May, but Mr Sukkar says he is focused on making sure, regardless of the election timetable, the pool will be “in the shape it needs to be” to reduce premiums for decades to come.

“It was always a very ambitious timeframe but my very strong view was that the issue was so acute that it needed to be fast-tracked,” he said. “We have done that, and we will seek to introduce a bill establishing the pool early next year for commencement on 1 July.”

The reinsurance pool, backed by a $10 billion Government guarantee, was announced by Prime Minister Scott Morrison during a trip to northern Queensland ahead of the May budget. Increased spending on mitigation and resilience measures was also included in the budget.

Mr Sukkar says while mitigation is the long-term solution, the pool provides an immediate response to address the lack of insurance, and the Government has entered the process with “eyes wide open”.

“If we start from the premise that Government is ultimately the insurer of last resort for people who don’t have insurance, we think this is a really prudent investment to ensure accessibility to insurance is there,” he said.

Mr Sukkar says discussions have included the potential to reinvest proceeds that accumulate in the pool into mitigation, creating a “virtuous circle” that will reduce future risk to the scheme.

ICA said today that it was critical mitigation spending took place alongside the creation of the pool, while also reiterating calls for insurance taxes and fees to be removed by state governments to improve affordability.

“We would like to see a sunset clause on a reinsurance pool because we would like to see a day when all homes built north of Brisbane, basically, can withstand a tropical cyclone and be insured,” ICA CEO Andrew Hall said.

The ICA forum, which returned as an online event, discussed affordability and availability problems more broadly and looked at issues including cyber cover, natural catastrophe responses and regulation.

Australian Securities and Investments Commission (ASIC) Deputy Chairman Karen Chester says the regulator has been frustrated by the industry’s delay in addressing under-investment in data, systems and controls.

“We now have a pipeline of cases in the insurance sector, mostly stemming from poor management of non-financial risk, be it lack of robust internal controls, legacy systems, product design or implementation issues,” she said, adding "one such case" is likely to become public in coming days.