Source: Australian Ministers for Regional Development
The Australian Government’s cyclone reinsurance pool is helping to reduce insurance premiums or moderate premium increases for people living in areas at higher risk of cyclones, the ACCC’s fifth and final insurance monitoring report has found.
However, nationwide, insurance premiums remain very high for many consumers and are generally rising.
“While there are clear signs the pool has reduced premiums for policyholders living in areas with higher cyclone risk, other factors mean insurance premiums remain very high for many Australian households, including those in high-risk areas,” ACCC Commissioner Anna Brakey said.
The ACCC compared premiums before and after insurers joined the pool. Focusing on premiums per $100,000 sum insured, it found that in the first year after insurers joined the pool, average premiums in higher cyclone risk areas had fallen 11 per cent for home insurance, eight per cent for strata insurance and 24 per cent for small business insurance.
By contrast, in areas at no risk of cyclones, home insurance rose six per cent, strata insurance rose two per cent and small business insurance rose 10 per cent in that same period.
The impact of the pool is shown by reductions in higher cyclone risk areas having been sustained over time. The ACCC’s analysis found that up to two years after insurers joined the pool, home insurance premiums had reduced 14 per cent and small business insurance reduced 31 per cent compared to pre-pool prices.
The ACCC has published five monitoring reports since 2022, delivering data-informed evidence about whether the pool is achieving its intended outcomes. Today’s report concludes the ACCC’s role to monitor the effect of the introduction of the pool.
“Through our insurance monitoring work, the ACCC has analysed the impact of the pool and provided greater transparency on how savings from the pool are passed on to policyholders. This oversight can encourage more accountable behaviour from insurers,” Ms Brakey said.
Lower premiums for some consumers in higher risk areas
The ACCC has found that, consistent with the intent of the pool, the largest reductions in premiums have been for households and small businesses at the greatest risk of cyclones, which represent two per cent of policies nationally.
Average premiums per $100,000 sum insured fell for combined home and contents insurance in Karratha (down 15 per cent), Mackay (down 14 per cent), Cairns (down 12 per cent) and Townsville (down 3 per cent).
“We also found evidence of reductions for strata and small business policyholders in cities at higher cyclone risk, with some particularly sharp decreases for those paying the highest premiums,” Ms Brakey said.
Consumers remain concerned about affordability
While insurers are passing on the reduced reinsurance rates to policyholders in areas at higher risk of cyclones, the impact of other extreme weather events and claims costs inflation is pushing premiums higher across Australia, the ACCC’s monitoring found.
The ACCC found the average premium in 2024–25 for home and contents insurance was almost $5,000 in north Western Australia, over $3,500 in the Northern Territory and more than $3,100 in north Queensland. Despite some improvements for some consumers in northern Australia, premiums continue to rise across the country. In the rest of Australia, average premiums rose 10 per cent to $2,310 between 2023–24 and 2024–25.
For its final report, the ACCC commissioned a survey to measure consumer concerns about insurance. It found that, regardless of the cyclone risk they face, around half the households surveyed Australia wide rated their home insurance as unaffordable or barely affordable.
The pool has given some consumers more choice of insurer
The pool is also intended to encourage more insurers to participate in northern Australian insurance markets. The ACCC has observed some improvements in the availability of insurance for some consumers, but insurers still perceive a range of barriers to entering or expanding into northern Australian insurance markets, beyond the cyclone risk addressed by the pool. No new insurers have entered these markets since the pool was established.
More insurers recognise private cyclone risk mitigation
Over the long term, the pool aims to maintain incentives for policyholders to undertake measures that reduce the risk of cyclone and related flood damage at their property.
More insurers now recognise private mitigation measures implemented by policyholders. However, the ACCC found some insurers are yet to implement a mitigation framework, and the clarity of the information provided to consumers about private mitigation varies.
“Mitigation remains one of the key factors that will improve the resilience of communities to natural hazards. We found insurers could be doing more to support consumers to understand their options and to recognise the efforts of those who have taken steps to reduce the risk to their property,” Ms Brakey said.
Background
Reinsurance is taken out by insurers to help cover potential large losses from natural disasters such as cyclones and is a significant cost component of premiums in higher-risk areas.
The Australian Government established the cyclone reinsurance pool in 2022 to reduce the cost of reinsurance for cyclone risk and help make insurance more affordable for households and some small businesses in areas at higher risk of cyclones. The pool, which is administered by the Australian Reinsurance Pool Corporation, provides reinsurance for cyclone and cyclone-related flood risks covered under home, contents, strata and small business insurance (for sums insured up to $5 million) across Australia. Large insurers were required to join the pool by the end of 2023 and small insurers by the end of 2024. The list of participating insurers is available on the Australian Reinsurance Pool Corporation website.
The ACCC was directed to monitor insurance prices, costs and profits before and after the introduction of the pool and was required to provide a report to the government at least once each calendar year from 1 January 2022 to 30 June 2026.