The Australian Reinsurance Pool Corporation (ARPC) is currently reviewing the premium rates for its Cyclone Reinsurance Pool. This review aims to ensure that the premium rates remain fair and effective, and any changes decided upon will take effect from April 1, 2025.

Seeking Public Feedback

ARPC is inviting public feedback on the current and proposed changes to cyclone pool premium rates. They are particularly focused on a new idea: offering discounts on wind premiums for certain strata policies. This discount is designed to encourage property owners to take steps to reduce the risk of damage from cyclones, such as reinforcing their buildings to withstand high winds.

Purpose of the 2024 Premium Rate Review

The 2024 review has several key objectives:

Ensure Adequate Coverage: Premiums should be sufficient to cover claims and expenses over the long term. This includes any payments made under the Commonwealth guarantee.

Affordable Premiums in High-Risk Areas: In areas at medium to high risk of cyclones, premiums should be as low as possible while still encouraging risk reduction measures.

Comparable Premiums in Low-Risk Areas: In lower-risk areas, premiums should be comparable to what other reinsurers would charge.

Proposed Changes

The analysis so far indicates that the current premium rates, set in 2022, are generally meeting these objectives. Therefore, the proposed changes for 2024 are minor.

Introducing Mitigation Discounts

One significant proposed change is the introduction of mitigation discounts on wind premium rates for eligible strata policies. These discounts would reward property owners who take specific actions to reduce their risk of damage from cyclones. The discounts have been developed in collaboration with the Cyclone Testing Station at James Cook University and are based on the estimated effectiveness of these mitigation activities. These discounts will be reviewed and possibly adjusted over time as more data on claims becomes available.

Next Steps

Once the consultation period is over, ARPC will finalize and release the new premium rates. They will also publish an updated Premium Rate Assessment Report to provide detailed information on the changes.

Background on ARPC

ARPC is a public financial corporation established under the Terrorism and Cyclone Insurance Act 2003 (TCI Act). It manages two reinsurance pools: one for terrorism-related losses and one for cyclone-related damages. The cyclone reinsurance pool provides coverage for cyclone and cyclone-related flood damage to houses, small businesses, and strata properties.

Simplifying the Process

The proposed introduction of mitigation discounts is intended to make it easier and more cost-effective for property owners to protect their assets. By offering financial incentives for taking preventive measures, ARPC hopes to reduce the overall impact of cyclones and help policyholders save on their premiums.

Community Involvement

ARPC emphasizes the importance of community involvement in this review process. By gathering feedback from the public, they aim to ensure that the premium rates are fair and reflect the needs and concerns of those most affected by cyclones.

Potential Benefits

If implemented, the mitigation discounts could lead to several benefits:

Reduced Risk of Damage: Encouraging property owners to take preventive measures could significantly reduce the risk of damage from cyclones.

Lower Premiums: Policyholders who invest in mitigation activities could see lower premiums, making insurance more affordable.

Improved Data: As more data on the effectiveness of mitigation measures becomes available, ARPC can further refine the premium rates and discounts.

How to Participate

Those interested in providing feedback on the proposed changes can do so through the ARPC's consultation process. Details on how to participate are available on the ARPC's website.

Conclusion

The ARPC's review of cyclone reinsurance pool premium rates is an important step in ensuring that premiums are fair, effective, and encourage risk reduction. The proposed introduction of mitigation discounts is a promising initiative that could benefit both property owners and the broader community. By participating in the consultation process, the public can help shape the future of cyclone insurance in Australia.

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