Severe Tropical Cyclone Ilsa, which is set to cross the Pilbara coast near Port Hedland as a category 4 system tonight, will act as a litmus test for the Federal Government’s new cyclone reinsurance pool and expose any fundamental issues, Broome Insurance Brokers Director David Keys says.

The Australian Reinsurance Pool Corporation (ARPC) has declared Ilsa a cyclone event under the pool, which is run by ARPC and backed by a $10 billion government guarantee.

So far Allianz and Sure Insurance have signed up to the scheme, which is designed to pay the entirety of every eligible cyclone claim. Large insurers have until the end of this year to join, and small insurers until the end of next year.

"It’s interesting to see how it's going to be treated, to have a test case nice and early so if there are any issues or any bugs, that can be ironed out,” Mr Keys tells insuranceNEWS.com.au.

"It will be a good litmus test. Any issues can be ironed out before all the others join, and maybe that's what the others were waiting on – so they could see how it would be dealt with in the event of a cyclone.”

Mr Keys says Allianz will be “patting themselves on the back” as it will be protected from the cyclone exposure for policies issued since January 1, while other insurers still carry the risk. The delay in insurers joining is frustrating, he says, as potential lower premiums for regional WA are taking longer to flow through.

"I've had lots of people say they will kind of hold off on their renewal and only have a short-term policy, people are making those sorts of requests. At this stage we still don't know the full impact of what reductions in premiums are going to apply. Is it 5%? Is it 30%? No one knows what the effective discounts or reduced amounts will be in particular areas.”

He welcomes the pool, saying it will remove an excuse long relied upon by insurers that decline to offer cover in the Broome area, or offer premiums as much as six times those offered in capital cities.

“That’s always been the convenient excuse not to underwrite business here and it will be interesting to see whether they all do participate in writing commercial and domestic business in these regions as much as they do everywhere else now the reinsurance is protecting them from cyclone.

“Whether they do put their toe in the water and start underwriting business, I'll be very interested. I think there's more to it – if that's what the genuine reason was, well that's no longer a reason.”

WA residents in the 700km south of Broome are bracing for Cyclone Ilsa, which is expected to cross the coast between Port Hedland and Bidyadanga tonight or early on Friday as a category 4 system.

Mr Keys says locals are well informed, evacuation centres are in place and properties are designed to be cyclone proof, without gutters.

As of 5am today, the Bureau of Meteorology had an active yellow alert for people between Bidyadanga and Whim Creek, including Port Hedland and extending inland to include Marble Bar, Nullagine and Telfer.

"People need to act and get ready to shelter from a cyclone,” it advised those residents.

A blue alert was active for people south of Broome to Bidyadanga, (but not including Bidyadanga), and inland areas to Parnngurr and Kiwirrkurra, and from Roebourne to Whim Creek (but not including Whim Creek).

Those residents “need to prepare for cyclonic weather and organise an emergency kit including first aid kit, torch, portable radio, spare batteries, food and water,” the Bureau said, adding that people in or near Beagle Bay to Broome, including Broome, have the “all clear”.

"It's looking more and more positive for Broome. It's now almost guaranteed to miss us, and possibly even miss Port Hedland. If it's going to hit in an area that's less populated, that's probably a good thing,” Mr Keys said.

“Port Hedland is a really big port. The massive ships, they cleared them all out of the port. It's almost unprecedented for it to be shut down like that so they're obviously worried by it,” Mr Keys said.

Ilsa’s “very destructive core,” with extreme gusts up to 275 kmh, is expected to impact the area between De Grey and west of Bidyadanga first, before tracking inland towards Telfer during Friday.

Heavy rainfall and squally thunderstorms are expected over the western Kimberley, and may extend to the eastern Pilbara during today and northern interior from Friday, with 200-400mm of rainfall possible during today and Friday near where Ilsa crosses the coast.

Abnormally high tides are possible about the coast between Broome and Port Hedland.