Cyclone pool premium annual collections from insurers would increase to $770 million under draft rates proposed as part of the most comprehensive reassessment undertaken in four years. 

The Australian Reinsurance Pool Corporation (ARPC) is consulting on rates that would apply from next July following a pricing review that updates its assessment of risk and how premiums should be allocated across properties. 

Under the draft rates, the premium collected from insurers in total would increase by $22 million, or 2.9%, improving long-term adequacy from 95.1% to 97.9%.  

A rebalancing would see average pool premiums decrease for medium and high-risk properties and increase modestly for those at minimal and low risk. 

Annual claims and expenses are estimated at $786 million, which on a comparable basis is around 3% higher than the previous assessment, mainly due to updated cyclone-related riverine flood modelling and improved property location information. 

The updated modelling sees pool claims cost for wind declining 1% to $636 million, while they increase 28% for flood to $127 million and ease 6% for surge to $23 million. 

ARPC says it has also reviewed latest relevant climate science and how the catastrophe models reflect cyclone risk. 

“We concluded that no additional explicit climate adjustment was required for this review,” it says. “This does not mean that climate change has no effect on cyclone risk. We will continue to assess emerging science and model updates in future pricing reviews.” 

Each address in Australia is allocated to a wind band, which is a measure of risk used to calculate cyclone pool premiums. 

The consultation paper says by July this year, average quoted premiums in the highest wind bands were 37% below their October 2022 level. 

“These reductions occurred during a period of broader increases in home insurance costs. For lower-risk properties, the cyclone pool component is relatively small, so movements in their total premiums largely reflect other insurance costs,” it says. “The results are consistent with the pool improving affordability for higher-risk properties.” 

The proposed rates have a small effect on average total premiums in lower-risk wind bands and would reduce average total home premiums in the highest bands a further 3.9%, assuming insurers pass the change through to customers, with other components unchanged. 

Written submissions on the proposed rates are due by November 6. More details are here.