Chapter 1Introduction
1.1This is the Joint Select Committee on Northern Australia’s second report on the operation and implementation of the Cyclone Reinsurance Pool (the pool).
1.2As a parliamentary committee, the Joint Select Committee on Northern Australia is responsible for scrutiny and oversight of the work of executive government related to Northern Australia. In particular, the committee’s role includes:
ensuring that government policy and programs for Northern Australia are fit-for-purpose and address the issues that they are designed to address; and
making recommendations to executive government to improve policy and programs for Northern Australia, based on issues identified by civil society, peak bodies, industry, businesses and individuals.
1.3Insurance affordability and availability is a key concern for many residents of Northern Australia, and a major factor in the decision to move to the region or stay in the region. The Cyclone Reinsurance Pool is one of the major levers used by the Australian Government to influence insurance affordability and availability in cyclone-prone areas of Northern Australia.
1.4The committee’s interest in conducting an inquiry into the pool arose because of concerns about:
the implementation of the pool to date;
the reasons for a slow initial take-up of the pool by insurers;
whether the pool is reducing the cost of insurance premiums for consumers to the extent anticipated; and, relatedly
community expectations about the extent and timeframe of the anticipated premium reductions.
1.5All insurers required to join the pool have joined as they were required to do by 31 December 2024 (for small insurers) and by 31 December 2023 (for large insurers).
1.6The Australian Government is required, under section 41 of the Terrorism and Cyclone Insurance Act 2003, to review the Act ‘as soon as practicable after 1 July 2025’ and ‘prepare a report that reviews the need for this Act to continue in operation’.
1.7As such, this report is timely. It is now two years since the committee tabled the First Report. The pool has been operating fully since 1 January 2025, and a review into the need for the scheme to continue is scheduled to occur later this year.
1.8This report examines in further detail whether the pool is operating as intended and meeting its policy objective of ‘improving insurance access and affordability for households and small businesses in cyclone-prone areas of Australia’. The report is divided into five chapters:
this chapter provides a brief background to the pool and notes the findings of this inquiry’s report tabled in March 2023, the First Report on the Cyclone Reinsurance Pool;
Chapter 2 summarises the current state of play by outlining the present status of the pool and recent relevant findings of the Australian Competition and Consumer Commission (ACCC) and the Australian Reinsurance Pool Corporation (ARPC);
Chapter 3 examines the evidence presented to the committee on the operation of the cyclone reinsurance pool, including areas where stakeholders suggested it could be improved;
Chapter 4 considers other measures proposed to improve insurance availability and affordability in Northern Australia; and
Chapter 5 presents the committee’s views, recommendations, and proposed next steps.
Conduct of the inquiry
1.9Following a referral received on 11 October 2022 from the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP, the Joint Select Committee on Northern Australia undertook to inquire into and report on the operation and implementation of the Cyclone Reinsurance Pool.
1.10The committee wrote to relevant industry, consumer and government entities seeking submissions. The committee received 14 submissions, which are published on the inquiry webpage and listed at Appendix 1.
1.11The committee held three public hearings:
25 November 2022, in Canberra;
19 April 2024, in Brisbane, Queensland; and
7 February 2025 in Canberra.
1.12Transcripts are available on the inquiry webpage. Witnesses are listed at Appendix 2.
1.13Hansard references in this report may refer to proof or final transcripts. Page numbers may vary between proof and final Hansard transcripts.
1.14Written questions on notice were answered by various Commonwealth entities and industry bodies. These are published on the inquiry website along with tabled documents, additional information and answers to questions taken at public hearings. The full list of documents the committee received can be found in Appendix 1.
1.15The committee thanks all those who have contributed to this inquiry by making submissions, giving evidence at public hearings and responding to questions on notice.
Note on terminology
1.16To assist readers, three key definitions are provided below on how terms are used in this report:
Reinsurance: Reinsurance is where an insurer pays a premium to transfer part of its claims risk to a reinsurer. This allows the original insurer to underwrite larger or unique risks; in effect, it is insurance for insurers. For the purposes of this inquiry, it refers to reinsurance of cyclone-related damage risks.
Resilience: In this report, resilience refers to the physical capacity of a building to withstand cyclone and flood damage.
Mitigation: Mitigation refers to measures taken to improve the physical resilience of buildings to cyclone and flood damage.
How the pool operates
1.17The pool is a reinsurance arrangement underwritten by the Australian Government for insurers who offer coverage for cyclone and related flood damage. The purpose of the pool is to improve ‘insurance access and affordability for households and small businesses in cyclone-prone areas of Australia’.
1.18The legislative framework for the Cyclone Reinsurance Pool and the government agency that administers it (the Australian Reinsurance Pool Corporation, or ARPC) is set out in the Terrorism and Cyclone Insurance Act 2003 and Terrorism and Cyclone Insurance Regulations 2003.
1.19The pool covers reinsurance for household, strata and small business property insurance policies.
1.20Although the pool operates Australia-wide, it targets support to cyclone-prone areas—in other words, much of Northern Australia.
1.21The pool commenced operations from 1 July 2022. Participation in the pool is compulsory for Australian general insurers with eligible cyclone pool insurance contracts. Large insurers were required to join the pool by 31 December 2023, while small insurers were required to join by 31 December 2024. Joining is optional for insurers whose gross written premium is less than $10 million in the most recent financial year, but they must notify the ARPC of their intention not to join the pool for that year.
1.22The pool is funded by charging reinsurance premiums to insurers who join the pool. The ARPC sets premium amounts, with the pricing formula designed to:
be cost-neutral to Government over the longer term;
lower the reinsurance cost for most policies with medium-to-high exposure to cyclone risk; and
maintain incentives for risk reduction and offer discounts for properties that undertake mitigation.
1.23The pool is backed by an annually reinstated $10 billion guarantee from the Australian Government, which will cover any shortfall in reserves built up over time. The Australian Government has committed to increasing the guarantee if it is likely to be exceeded by a single cyclone event or series of cyclone events within a single year.
1.24The ARPC declares the start and end of a cyclone event for reinsurance purposes, based on advice from the Bureau of Meteorology. A ‘cyclone event’ is defined as the time a cyclone begins until 48 hours after it ends.
1.25Government departments and agencies responsible for matters related to the pool’s operation include:
the ARPC, a public (government-run) financial corporation which provides reinsurance for cyclone (and terrorism) events, and has a ‘longer-term vision … to support insurers to deliver affordable terrorism and cyclone insurance in Australia’;
the Bureau of Meteorology, which notifies the ARPC when a cyclone exists, or has re-intensified, that has potential to affect Australia, along with when a cyclone ends;
the ACCC, which monitors insurance pricing to determine the impact of the pool and whether the savings from the pool are being passed on to policy-holders; and
the Treasury, which has broader policy responsibility for matters related to the pool and administers the legislation underpinning the establishment of the pool.
1.26The Terrorism and Cyclone Insurance Act 2003 is due to be reviewed ‘as soon as practicable after 1 July 2025’ and ‘at least once every 5 years after that day’, with the review report to consider ‘the need for this Act to continue in operation’.
The First Report
1.27In March 2023, the committee tabled its First Report on the Cyclone Reinsurance Pool. The two main concerns canvassed in evidence, as outlined in that report, were:
the timing of the release of modelling by the ARPC; and
whether the anticipated savings generated by the pool for policy holders will materialise.
1.28Other concerns raised included what further incentives could be used to encourage insurers to offer coverage in Northern Australia (and join the pool), the impact of the 48-hour clause on the cost of insurance premiums in Northern Australia, and whether marine insurance would be included in the pool’s coverage.
1.29The committee’s recommendations included that the Australian Government:
ensure that future releases of modelling are provided well in advance of key dates in the ongoing roll-out of the Cyclone Reinsurance Pool;
review the availability and coverage of insurance in Northern Australia, specifically the insured versus the uninsured, including non-participation;
review the impact of the 48-hour clause on the cost of insurance premiums, and the availability of insurance in the region, as part of a scheduled review in 2025;
direct the ACCC to monitor the cyclone insurance markets in Northern Australia, and report on thin markets, under-insurance and lack of insurance coverage in some areas;
announce a position on whether marine insurance will be included in the pool’s coverage;
facilitate a coordinated approach to land use planning, building codes, mitigation and disaster resilience;
consider, in the scheduled 2025 review of the pool:
whether to ‘sunset’ the pool’s coverage of policies for new builds past a certain date;
how to reinforce the policy objective of the pool to move to parity of cost and access for all Australians; and
consider, in future reviews of the pool, the sum insured limit under the business property policy.
1.30As of March 2025, the Australian Government had not yet responded to the committee’s report and recommendations, despite being required to within three months of the report tabling.