Some brokers have ditched commissions to help clients struggling to afford cover, according to an annual review of the cyclone reinsurance pool.

Concerns around affordability have increased even as premiums in high-risk cyclone areas have come down since the pool launched in July 2022, the Australian Competition and Consumer Commission report says.

The commission talked to insurance intermediaries as part of its review, and one broker noted premium savings varied between their customers.

“Large strata buildings had been the big beneficiaries of the pool, [the broker] said, with one large building receiving a 73% premium reduction,” the report says.

“They observed that, even though the pool was working well for some strata customers, generally customers were not getting the savings they had expected to receive.”

Measured on a $100,000 sum insured basis, average strata premiums have dropped 7% in medium- to high-risk cyclone areas, compared with 11% for home and contents premiums in places with similar exposures.

The review says availability of cover and competition in strata insurance markets have long been concerns for many in northern Australia.

Strata insurance being heavily intermediated “leads to substantial commission costs for properties with a higher exposure to risk. In this regard, commissions can have a compounding effect on affordability concerns.

“However, due to increasing affordability concerns, some brokers are moving to fee-for-service models for clients located in high-risk areas, in order to reduce the retail premium.”

Commission costs in northern Australia comprised 15%-17% of average strata policy costs in 2023-24, the review says.

“However, these costs do not include those additional commissions or fees charged by brokers or strata managers to arrange insurance ... so the actual impact on the final amount paid by strata consumers is likely to be higher in many cases.”

The National Insurance Brokers Association says its members “play a critical role in supporting households and businesses, particularly in high-risk regions.  

“The higher use of brokers in northern Australia reflects the genuine difficulties many face obtaining insurance protection in cyclone-prone areas. Brokers bring expertise, advocacy and practical solutions that are often essential when insurance options are limited or premiums are high.”

The review says small business insurance in northern Australia appears highly intermediated, as indicated by commission costs. In 2023-24, commission costs comprised 19% of the average cost per SME policy in the region, compared with 14% elsewhere.

NIBA says it is disappointed the review does not address the impacts of insurance-based taxes, which undermine affordability.

“The most effective and sustainable way to reduce premiums remains reducing the underlying risk by consumers,” the association said.

“NIBA remains committed to advocating for measures that address the root causes of affordability challenges and support the resilience of communities most exposed to extreme weather risk.”

See the report here.