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Insurers agree to investigate cyclone reinsurance pool

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The feasibility of a government-backed cyclone reinsurance pool will be examined as a possible measure to bring down premiums in northern Australia, after insurers and Federal Assistant Treasurer Michael Sukkar held discussions in Townsville on Friday.

The meeting was organised to discuss affordability issues and mitigation measures, with the agreement to examine a reinsurance pool option coming as a surprise and revealing a developing schism in the industry’s long-held opposition to a reinsurance pool.

The Insurance Council of Australia (ICA) says the industry agreed to work with the Government to consider “a range of options” to reduce premium pressures and increase coverage.

“This includes developing a list of communities where priority physical mitigation projects might be effective, in consultation with local stakeholders,” spokesman Campbell Fuller said.

“Insurers remain committed to reflecting the effectiveness of mitigation and property resilience through premium reductions.

“Insurers also agreed on preliminary work with Government and Treasury to explore the feasibility and potential effectiveness of a government-funded cyclone reinsurance pool.”

The industry position has been that reinsurance pools are unviable, expensive, and don’t solve underlying issues. It was relieved when the 2015 Northern Australia Insurance Premiums Taskforce snubbed the concept of government intervention and instead favoured mitigation.

Allianz has consistently bucked the trend and argued that a pool is needed to bring relief in the short term, while strongly supporting mitigation work as a longer-term project.

A spokesman said today that “Allianz regards a government-backed reinsurance facility as the most efficient and effective mechanism to deal with the problem”.

But it is no longer a lone voice. Today IAG told insuranceNEWS.com.au it “sees merit” in investigating a government-funded pool.

But rival insurer Suncorp, which has far higher exposures in northern Australia than IAG, says while it supports preliminary work to “once again” investigate the pool proposal, its “long-held and well-documented concerns” remain.

As previously reported, an ICA discussion document in advance of the meeting suggested insurers offer to sign agreements guaranteeing premium reductions if certain mitigation measures are carried out.

But insuranceNEWS.com.au understands this idea didn’t get off the ground at Friday’s meeting.

Treasury will now work with the industry on the design of a reinsurance pool before any next steps are announced, most likely by early next year.

insuranceNEWS.com.au will carry further detailed reports on this issue in our Daily bulletins this week.