No rush to rethink pool pricing, Alfred review finds
A reinsurance pool pricing review that examined Cyclone Alfred impacts has found it would be premature to raise premiums for climate change trends in the absence of scientific clarity and model signals.
The Finity report says there is high uncertainty and disagreement on whether Australia will experience “poleward migration” of tropical cyclones, and over what time frame.
Alfred, the first cyclone in more than 50 years to threaten the Brisbane area, faded from category 2 strength to hit the coast as a tropical low, after a large high-pressure system pushed it slowly westward.
Finity says it is not uncommon for cyclones to track a long way south, even as far as Brisbane, but they have typically moved east and out to sea by then. Alfred has not provided evidence of poleward migration and similar events are allowed for in modelling.
“Our review did not find that the cyclone pool premium rates should be adjusted in response to either TC Alfred or broader climate change risk drivers at this point in time, considering both the uncertainty in the science and the level of sophistication in catastrophe modelling to reflect climate science,” the actuarial consultant says.
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Finity notes cyclone frequency and intensity differences between the northern hemisphere and the south – where the water-to-land ratio is higher – also suggest caution and the need for more research and consensus.
Poleward migration is a significant risk for the government-backed pool because it would expose large populations in Brisbane and Perth to events not fully reflected in building codes.
The Alfred analysis is part of an Australian Reinsurance Pool Corporation-commissioned review of premium rates and changes to apply from April 1.
Finity finds premiums remain adequate overall and sufficient to meet longer-term costs.
Total premiums collected are estimated to rise 2% to $637 million as of April next year, reflecting sums insured inflation and the reinsured property mix.
Rating algorithms will remain unchanged for home and strata, while SME risk mitigation discounts will be introduced for roof, window, door and gutter overflow work.
ARPC CEO Christopher Wallace says premium rates are ensuring the cyclone pool remains financially sustainable and responsive to evolving risks.
“These rates continue to meet legislative objectives, while the introduction of SME mitigation discounts recognises and rewards proactive risk reduction efforts,” he said.