Chapter 2The current situation
2.1This chapter provides an overview of how the pool is currently operating, as of March 2025. The chapter examines the findings of recent reports from the Australian Competition and Consumer Commission (ACCC) and the Australian Reinsurance Pool Corporation (ARPC). It then details the current status of the pool, including who has joined and the impact of the pool on premium costs for consumers, and discusses external factors affecting the price of insurance more broadly. The chapter closes with a brief examination of recent cyclones that have led to claims from the pool.
ACCC: Third insurance monitoring report
2.2In September 2024, the ACCC released its third insurance monitoring report following the introduction of the Pool. The report found that the ‘pool is beginning to deliver premium relief for some consumers in some regions facing higher risk of cyclones’. Despite this, ‘the cost savings generated by the pool have been offset to varying extents by other cost increases’, with premiums remaining very high for many consumers, as insurance premiums rise around the country.
2.3Key findings of the report are:
Most insurers are now in the pool: as of April 2024, it is estimated that 95 per cent of the insurance market is covered by the pool.
Cost savings passed on: generally, insurers are passing on savings from the pool in accordance with the policy intent of the pool.
Cost savings offset: cost savings generated by the pool have been offset to varying extents by other cost increases.
Premiums still high: whilethe pool may achieve some savings for consumers, premiums remain very high in Northern Australia and are generally rising around the country.
Insurance increases are smaller in Northern Australia: while the nominal premiums were higher in the northern regions, in percentage terms the rise in the median annual premium for a combined home and contents policy was highest in other parts of Australia.
Premiums for new policies in higher cyclone risk regions are reducing: home insurance premiums quoted in higher cyclone risk regions had an average decrease of 8–15 per cent per $100 000 sum insured and up to 24 per cent decrease for regions with the highest risk.
No increase in insurance availability: while the pool was designed to encourage insurers to enter or expand into Northern Australian insurance markets, insurers continue to maintain there are many other factors affecting their willingness to write policies in Northern Australia.
Risk mitigation: There has been some improvement in insurers’ appetite to use the pool to motivate private risk mitigation.
2.4Overall, the report noted that rising premium costs have been impacted by ‘economic and environmental factors beyond the pool, both locally and globally’. As a result, ‘even consumers who are benefiting from the pool may still be experiencing premium increases overall’.
2.5The report did acknowledge that it may ‘take several years before most consumers’ experience the pool’s ‘full potential impact on their premiums’, because of insurers entering the pool at different times, different pricing approaches, the time required for insurers to implement pricing changes, and the typical 12-month policy renewal cycles.
2.6The issues and findings of the September 2024 report are discussed in greater detail in Chapter 3, which undertakes an examination of the evidence given directly to this inquiry.
2.7The ACCC noted its reporting establishes ‘a dataset which allows an examination of the impact of the pool on prices, costs and profits of insurance’ and that this reporting helps to inform views and expectations about the pool’s effectiveness:
Ultimately, this work should assist governments in evaluating whether the pool is operating and delivering outcomes as intended.
With this third report showing a partial picture of the pool’s impact, our future reporting will develop a more representative picture of the pool’s potential to deliver cost savings to insurers, and the extent to which those savings can then be seen in the premiums consumers face.
ARPC 2024 Financial Outlook Report
2.8In June 2024, the ARPC estimated that on 1 July 2024, as a proportion of ultimate cyclone pool exposure, the cyclone pool would reinsure:
98 per cent of home properties;
almost 100 per cent of strata properties; and
87 per cent of small-medium enterprise (SME) properties.
2.9However, the ARPC noted in its 2024 Financial Outlook Report that actual earned premium ‘was significantly lower than initial expectations, primarily driven by fewer properties taking out insurance than originally modelled’. The report noted that ‘non-insurance is an important social issue’, but went on to comment that lower earned premium was not affecting the operation of the pool, ‘as the reduced premium income is offset by a reduction in modelled claims costs’.
2.10The 2023–24 financial year saw total claims cost of $155 million despite five declared cyclones, well below the average annual loss forecast of $568 million, leading to an operating surplus for the ARPC of $436 million. The ARPC projected that earned premium for the 2024–25 financial year would be ‘around 27 per cent lower than originally modelled when the pool was implemented, largely driven by fewer properties taking out insurance (that is, higher levels of non-insurance)’.
The report further noted that ‘significant proportions of policy holders’ were opting out of flood coverage in South East Queensland, Mid Coast Queensland, Inland Queensland and Southern Western Australia.
2.12Despite this evidence of significant under-insurance or properties taking out no insurance, the ARPC was of the view that projected ‘overall premium adequacy levels are consistent with the cyclone pool’s target of a 100% premium adequacy ratio over the longer-term’.
2.13The ARPC committed in its Financial Outlook Report to:
use property replacement cost data to provide insights into the impact, extent and spread of underinsurance; and
use the cyclone pool exposure dataset and property replacement cost data to better understand the impact of under- and non-insurance on premium adequacy.
2.14The ARPC also noted that ‘improving insurance take-up is a key objective of the cyclone pool’. It was of the view that if insurers change their practices when offering flood coverage in their insurance products, ‘this may have a material impact on take-up rates’. However, it stated that it was ‘seeking to further understand and quantify the drivers of non-insurance’.
Current status of the pool
2.15The pool has operated fully since 1 January 2025, at which point all eligible insurers had joined the pool.
2.16For the first time, the pool has been able to collect information on insurance coverage, where data was unavailable previously and existed only for individual insurers. In Far North Queensland, for example, the ARPC has found that 78 per cent of households have insurance. ARPC aims to use the data they are collecting to ‘highlight’ how insurance coverage is changing over time.
Membership
2.17All eligible insurers have joined the pool, as they were required to by 31 December 2024. The pool now covers 2.9 million households, 90 000 small businesses and 78 000 residential strata properties, including small commercial strata.
2.18According to the ARPC’s 2024 Financial Outlook Report,as of 30 June 2024, the pool was ‘close to having full coverage of expected ultimate exposure, with the overall outlook consistent with what was expected when the cyclone pool commenced’. Further, all large insurers ‘had entered the pool by the 31 December 2023 deadline and small insurers have indicated they are on track to enter the pool by the 31 December 2024 deadline’. Many smaller insurers indicated their timing of entry is related to private reinsurance renewal periods and implementing necessary system and process changes’.
The impact of the pool for consumers
2.19Overall, evidence to this inquiry has shown that the pool is reducing the cost of insurance premiums to some extent, but these reductions have been offset by higher costs in external factors such as increased building costs.
2.20The ARPC advised the committee that, according to its Premium Assessment report, ‘the cyclone pool focuses its benefit towards those areas at greater risk of cyclone damage’. Their report noted some regional areas generating quotes 38 per cent lower for both home and small business insurance as a consequence of the pool.
2.21The ARPC further advised that as there has been a ‘significant reduction in average policyholder premiums for the highest risk bands following entry to the cyclone pool’, this is ‘a positive sign that cyclone pool premiums are increasing insurance availability and insurer underwriting appetite in high cyclone risk regions’.
2.22The Insurance Council suggested that ‘there has been a mixed bag of results’ and noted that the success of the pool will depend on ‘the appetite for insurers to extend their coverage into the north’.
2.23Witnesses at the February 2025 hearing emphasised the following positive impacts of the pool:
Several new insurers have entered the market.
Because of the presence of new insurers, there are more options for consumers, more choice and competition and significant savings for some consumers as a result.
Cyclone reinsurance is now affordable for some insurers who previously would have been unable to afford it in the private market, meaning they are able to offer policies where they were previously unable to.
2.24The committee heard directly from insurers as to the premium discounts that were being generated from the pool. At the inquiry hearing in April 2024 the committee was told:
Insurance Australia Group noted that since joining the pool it reduced related premiums by an average of 17 per cent, with premiums in high and extreme cyclone risk zones discounted up to 40 or 50 per cent.
Suncorp had similarly reduced premiums by the mid- to high-teens, with a very small portion of policy-holders given premium reductions of over 50 per cent.
QBE had reduced premiums by around 18 per cent for householders.
The Australian Consumers Insurance Lobby told the committee the pool has delivered ‘meaningful results’, with large strata buildings that previously relied on the insurer of last resort achieving premium reductions of up to 73 per cent.
2.25The ACCC, in its September 2024 review of the pool, emphasised that:
It is important to bear in mind the pool was not designed to deliver premium savings to consumers in northern Australia facing low or no cyclone risk, nor to solve more generally the very acute affordability concerns facing some consumers. Where there continue to be other significant risks and factors that are acting together to sustain very high premiums, those risks and factors may ultimately limit the northern Australian community’s perceptions and expectations of the impact of the pool.
2.26However, the ACCC noted the following views expressed by insurance consumers:
There were persistent concerns about high and rising premiums, and the impact of this on the liveability of communities, widespread across Northern Australia, with uncertainty as to whether the pool will be able to deliver the types of savings that consumers are hoping for.
There are growing concerns about the risks and impacts of underinsurance and non-insurance on individuals and communities, with consequences that can be profound, long-lasting and widespread.
While the ACCC observed increasing potential for insurers to reward private mitigation actions and improve risk reduction and premium outcomes over time, consumers argued there appears to be no standardisation of risk mitigation measures that insurers will recognise and that incentives for the installation of mitigation measures are not being applied consistently.
The design of the pool is not widely understood by stakeholder groups.
2.27Specific proposals witnesses put forward to improve the pool are discussed in Chapter 3 and Chapter 4.
External factors affecting the price of insurance
2.28As noted by the ACCC in its September 2024 review of cyclone reinsurance, insurers have reported that obtaining reinsurance for cyclone events under the pool has led to cost savings compared with the prior year; however, despite any savings generated by the pool, reinsurance costs for most insurers have increased overall.
Figure 2.1Generalised process diagram for calculating a retail premium
Source: Australian Competition and Consumer Commission, Insurance Monitoring: Third Report Following the Introduction of a Cyclone and Cyclone-Related Flood Damage Reinsurance Pool, September 2024, p. 53.
2.29The above figure outlines the broad parameters under which retail insurance premiums are calculated. The ACCC further noted that two key factors influencing the increasing price of insurance premiums are the more frequent instances of extreme weather events resulting in more insurance claims, combined with higher building material and labour costs to rebuild when a weather event causes damage.
2.30It was reported to the ACCC that ‘reinsurance costs generally rose to 20-year highs following local and global extreme weather events, and contributed to increases in premiums’. This resulted in a reduced appetite for reinsurers to provide catastrophe cover given the frequency of such events in Australia.
2.31The Royal Automobile Club of Queensland (RACQ) informed the committee that the pool assisted in reducing what would have been much larger premium rises due to these external factors. RACQ noted that the pool had kept ‘a cap on what the increase could have been for people. The average increases last year were early double-digit percentages. They would have been higher if the cyclone pool hadn’t been in operation’.
Recent cyclones and claims on the pool
2.32A number of severe tropical cyclones have affected North Queensland since the start of the pool, leading to significant claims being made on collected pool premiums. These include Tropical Cyclones Jasper (December 2023) and Kirrily (January 2024).
2.33Severe Tropical Cyclone Jasper was the first cyclone event declared by the ARPC for the 2023–24 season, running from 10–14 December 2023, with the pool’s claims period ending on 16 December 2023. The ARPC commented that ‘Jasper resulted in extreme impacts on the communities affected, but, from a global reinsurance perspective … was a relatively small to modest sized disaster’. As at April 2024, the ARPC estimated it would receive $83 million in claims from insurers covered under the pool.
2.34Chapter 3 examines in more detail evidence suggesting that insurers were unable to claim significant losses arising from Tropical Cyclone Jasper from the pool because of the pool’s coverage being limited to 48 hours after a cyclone is downgraded.
2.35Severe Tropical Cyclone Kirrily’s cyclone event period ran from 24–26 January 2024, with the claims period ending on 28 January 2024. As at April 2024, the ARPC said it estimated that there would be $94 million in pool related claims arising from Kirrily.
2.36At the time of drafting this report, ex-Tropical Cyclone Alfred had caused damage and widespread flooding across southeast Queensland and northern New South Wales. This included major flooding that occurred after the claims period for the pool had ended (6am Australian Eastern Standard Time on Monday 10 March 2025, 48 hours after the cyclone was downgraded).
2.37As of March 2025, the full combined impact of Severe Tropical Cyclone Sean, Severe Tropical Cyclone Zelia and ex-Tropical Cyclone Alfred on claims to the pool was not yet apparent.