Chapter 5Committee view and recommendations
5.1The increasing prevalence and severity of cyclones—and the corresponding damage to homes, businesses and communities—has been a concern for many years, particularly in the high-risk areas of Northern Australia. One outcome of increased claims for cyclone-related damage has been the hesitancy of insurance companies to take on this ever-growing risk.
5.2While some insurance companies operating in Australia are still willing to operate in this elevated risk environment, many global reinsurance conglomerates have been reluctant to continue to provide reinsurance and have withdrawn from the Australian market or have increased prices to a level that is unsustainable for policy-holders. These higher costs are being paid by Australian insurers, with a flow-on effect of insurance premiums skyrocketing to unaffordable levels for people and businesses in those regions. Many individuals, families and businesses are unable to afford the insurance premiums and have found themselves with not enough, or even without any, coverage during cyclone events.
5.3The downstream effect for governments is that they must then step in to provide emergency relief for people with uninsured damage, which can often turn into long term welfare relief for families who may have lost their homes, or for employees of businesses that must close due to loss of assets. As noted in the explanatory memorandum for the bill establishing the Cyclone Reinsurance Pool:
Households that are underinsured or have no insurance have reduced financial capacity to recover from a natural disaster or other event. Poor insurance coverage can exacerbate costs and pressures for communities and for governments through increased pressure on health, emergency and welfare systems. It can slow the economic recovery of a region following a disaster.
5.4Clearly it was in the best interests of families, businesses and communities for government to step in to address this market failure. In early 2022, the Cyclone Reinsurance Pool (the pool) was established with bipartisan support, to allow insurance companies to transfer their risk for cyclones and cyclone-related flood damage.
5.5Since the establishment of the pool, there have been a number of significant cyclone and flooding events. At the time of drafting this report, parts of Northern Australia had experienced the effects of recent cyclone and high rainfall events, with devastating floodwaters still impacting many individual houses and entire communities. Members of this committee meet regularly, weekly even, with residents of Northern Australia whose homes have been flooded. People in Northern Australia are exhausted. They need certainty that they can continue to afford to live in parts of Australia that contribute significantly to Australia’s GDP.
5.6The key questions before the committee are:
whether the pool is operating in the best interests of impacted people;
if the pool is meeting its establishing principles to improve the accessibility and affordability of insurance for households and small businesses in cyclone-prone areas in Northern Australia; and
whether the pool providing sufficient incentives for risk reduction and encouraging cyclone and flood-related mitigation over time.
5.7The committee traversed many of these issues in its First Report of March 2023, which made 7 recommendations, for which the committee formally affirms its continued support.
Future of the pool
5.8The committee acknowledges that the pool has been in operation for only a short time, with all eligible insurers joining by the 31 December 2024 deadline. Given the relative newness of the scheme, it would not be reasonable to expect significant changes to the overall cost of insurance premiums to consumers at this point.
5.9However, as noted by the Australian Competition and Consumer Commission (ACCC) in its September 2024 monitoring report, the pool ‘is beginning to deliver premium relief for some consumers in some regions facing higher risk of cyclones’.
5.10Even so, as the ACCC acknowledged, these premium reductions are being offset by premium increases caused by other cost increases. The report further noted that, so far, there has been no increase in insurance availability in Northern Australia. In addition, while the pool does not show signs of failing to meet objectives, it does not yet show any signs of significant success.
5.11In January 2024, the Assistant Treasurer and Minister for Financial Services stated that the pool is ‘a good thing’ that will ‘make a difference’, but it will not ‘be a silver bullet that halves insurance premiums … So, what we need to do is ensure that it’s operating as effectively as possible’. He considered that ‘solutions in the area of insurance and insurance affordability actually lie outside of insurance and not inside’, arguing that insurance ‘is what happens when everything goes wrong. The best solutions are about ensuring we have better buildings, better infrastructure and better resilience’.
5.12The committee notes there is a scheduled review due to take place after 1 July 2025, with the Terrorism and Cyclone Insurance Act 2003 requiring the review report to consider ‘the need for this Act to continue in operation’. Further, the Insurance Council has also called for the review to consider ‘how appropriate sunsetting the pool’s coverage would be to aid in forcing the market to deliver houses that can withstand cyclones’.
5.13It is clear that the pool is having a positive, if limited so far, impact on the cost of premiums; this is apparent in both evidence to this inquiry and in feedback committee members have heard from constituents in Northern Australia. Further, evidence indicates that the pool is reducing premium costs. The committee calls on the Australian Government to provide continued support for the pool, given:
there has not yet been sufficient time to determine whether the pool is operating as intended;
the effect of mitigation and resilience measures on premium costs may take years to eventualise;
climate change is expected to lead to more disaster-level events; and
it is critical to Australia’s economy that populations continue to live and work in Northern Australia.
5.14The committee recommends that the Australian Government must proceed with the planned legislated review of the Cyclone Reinsurance Pool in 2025.
Adjustments to the pool
5.15Throughout the inquiry, stakeholders from all sides agreed that the pool is beneficial. However, many had differing ideas on how to improve its operations, including whether it should be expanded. The proposed areas for expansion, discussed further below, include:
lifting the sum insured limits;
extending the 48-hour period for flooding to be considered cyclone related;
including marine insurance; and
the potential for adding coverage for non-cyclone related flooding.
Sum insured limit
5.16The pool currently covers commercial property policies with less than $5 million total sum insured (for risks covered by the pool) and small and medium enterprises (SMEs) up to a maximum of $5 million insured. The First Report discussed calls to expand the sum insured limit for businesses. The committee recommended:
Recommendation 7
4.53 The committee recommends that future reviews of the Cyclone Reinsurance Pool consider the sum insured limit under the business property policy.
5.17The committee has received additional evidence that insurance is unavailable or unaffordable for businesses who may need to insure above this limit, which can impede their ability to continue operating and providing important jobs in regional locations.
5.18The committee reiterates its original recommendation that the limits should be reviewed for continued suitability.
48-hour rule
5.19The First Report noted the 48-hour rule, in which the pool covers cyclone and cyclone-related flood damage that occurs from the time a cyclone begins until 48 hours after the cyclone ends, as declared by the Bureau of Meteorology. The First Report recommended:
Recommendation 2
4.28 The committee recommends that the Australian Government review … the impact of the 48-hour clause on the cost of insurance premiums for Northern Australians, and the availability of insurance in the region as part of the built-in review in 2025, and adjust this clause if necessary.
5.20Since the tabling of the First Report, the committee has reviewed this issue in greater depth, with evidence discussed in Chapter 3. While some insurance entities did not agree with proposals to extend the 48-hour time limit, others insurers called for the extension of this arbitrary time limit, noting that in some cases over 60 per cent of cyclone-related insurance claims were not covered by the pool.
5.21Additionally, the committee gives great weight to evidence from Treasury that while extending the 48-hour rule would likely not lead to large, overall improvements in affordability, it would likely lead to benefits for high-risk properties.
5.22Given the pool’s overall objective in aggregating cyclone risk for homes and businesses in high-risk regions, the committee believes this is a worthy outcome and reiterates its recommendation that the 2025 review of the pool consider the benefits of extending the 48-hour damage period following the downgrading of a cyclone.
Marine insurance
5.23The committee heard opposing views on whether insurance for marine-related infrastructure should be included in the pool. Some insurers argued that this would increase reinsurance costs and ultimately increase insurance premiums for consumers.
5.24Conversely, other evidence argued that these increased costs would be minimal, and marine insurance should be included in some form, noting that there are two types of assets, being fixed assets like marinas and jetties, versus non-fixed assets such as boats. Extending the pool to fixed assets would be unlikely to increase costs significantly, due to the relatively small number of such assets across Northern Australian compared to other assets such as houses and other buildings.
5.25In the First Report for this inquiry, the committee noted calls for modelling on marine insurance.
5.26The committee was told by Treasury at the public hearing in February 2025 that Treasury had provided advice to government on the issue, and the timing and release of that advice or any government position on marine insurance is now in the hands of the Australian Government.
5.27The committee previously made a recommendation regarding marine insurance in its First Report:
Recommendation 4
4.36 The committee recommends that the Australian Government announce a position on the inclusion of marine insurance in the Cyclone Reinsurance Pool.
5.28The committee notes there has been no response from the Australian Government to date and reiterates its position. The committee further calls on the Australian Government to release modelling about the inclusion of marine insurance in the pool.
5.29The committee recommends that the Australian Government publish modelling on the cost and benefits of the inclusion of marine insurance in the Cyclone Reinsurance Pool.
General flood reinsurance pool
5.30The committee expressly considered in this report whether the pool should be expanded from cyclone-related flooding (within the allotted time limits) to include a general flood reinsurance pool.
5.31The committee heard from both consumer advocates and some insurers that without strong investment in resilience measures, a government-backed flood reinsurance pool may become a necessary solution. The committee also heard that while flood risk impacts a much smaller number of homes and businesses, it is more geographically spread out across Australia. One common element, however, is that flood risk tends to be concentrated in areas of higher economic disadvantage.
5.32This inquiry is not the first to turn its mind to the issue of flood insurance beyond cyclone-related floods. The House of Representatives Economics Standing Committee, in its October 2024 report, Flood Failure to Future Fairness, noted significant support for further investigation into the feasibility of a reinsurance pool for flood, and made a detailed recommendation for the Australian Government to consider the appropriateness of a government supported reinsurance arrangement for flood insurance.
5.33The Australian Government has not yet responded to that inquiry report.
Mitigation
5.34One of the purposes of the pool is to ‘keep [insurance] premiums as low as possible while maintaining incentives to reduce and mitigate the risk of eligible cyclone losses’. However, whether or not discounts are ultimately given to insurance policy holders for mitigation remains obscure. There appears to be no data collected to ensure this occurs proportionately, consistently, or even at all.
Mitigation discounts on insurance premiums
5.35The committee notes the calls from the insurance industry for governments to commit to more resilience and mitigation efforts. The committee also recognises the Australian Government has made significant investments in programs to encourage mitigation and resilience, and the Australian Reinsurance Pool Corporation has applied premium discounts for insurers on the basis of particular mitigation efforts. However, such measures are only effective if they have a direct, measurable impact on the cost of insurance for consumers. The insurance industry has a key role to play in responding to mitigation by reducing the cost of insurance premiums accordingly, and by reassuring the public that it is doing so.
5.36While there was evidence presented to the committee on mitigation initiatives that are, or could be in future, taken outside of the pool, there was conspicuously little evidence on the effectiveness of the pool in incentivising the mitigation of cyclone losses at an individual claimant level. This absence of evidence speaks volumes as to how well mitigation incentives are being incorporated into individual insurance contracts that are underwritten by the pool. Clearly, there needs to be greater focus on incentivising mitigation via the pool—that is, by ensuring there are appropriate premium discounts applied to individuals who undertake agreed mitigation improvements to their houses or businesses.
5.37The committee notes that the most recent independent review of the General Insurance Code of Conduct recommended that, subject to financial advice law, the code ‘should require insurers to provide transparency about the types of consumer risk-mitigation activities that result in a pricing benefit’. A similar recommendation was made by the House of Representatives Economics Committee’s October 2024 Inquiry into insurers’ responses to 2022 major floods claims.
5.38The Insurance Council of Australia published a joint response to the General Insurance Code of Conduct and the Inquiry into insurers’ responses to 2022 major floods claims, focusing on ‘recommendations across both reports that can be supported or where the industry can work constructively with others to explore implementation’. No comment appeared to be made in that response to the recommendation around greater transparency for mitigation-related insurance premium discounts. However, the Insurance Council did note that further progress will be outlined in early 2025, and separately stated in February 2025 that it ‘is now working on recommendations from the various inquiries and looks forward to consulting with consumer advocates and other key stakeholders on this work’.
5.39The committee calls on the Insurance Council and other insurers to publicly commit to providing all insurance policyholders who engage in mitigation and resilience an estimate of how much these efforts have saved or will save them on their premium costs. The committee also calls on insurers to commit to publishing the overall net positive impact of mitigation and resilience measures on the cost of insurance premiums. The committee further calls on the Insurance Council and the insurers who have engaged in this inquiry to provide a public response to this recommendation.
5.40The committee further believes there is a role for the ACCC to monitor whether insurers are passing on premium discounts to customers who undertake approved mitigation activities. This will require expanding the ACCC’s remit and appropriately funding it. The committee’s recommendation on this matter is set out below.
Mitigation incentives through tax relief
5.41The committee notes evidence calling for money from the pool’s surplus to be used for resilience and mitigation measures and to reduce the cost of premiums. However, the Australian Reinsurance Pool Corporation (ARPC) gave evidence that they are maintaining reserves for a ‘big loss event’, modelled to occur on average once every five years and cost billions of dollars. As such, the committee considers that it will be several years before the ARPC can safely consider using any surplus funds for such an initiative, without needing to draw on the Australian Government’s guarantee. Alternative mechanisms to incentivise mitigation should therefore be sought in the short-term.
5.42The committee acknowledges the Australian Government’s significant work in this space already, including up to a billion dollars provided through the Disaster Ready Fund, the Hazards Insurance Partnership and Strategic Insurance Projects, and the Insurance Affordability and Natural Hazards Risk Reduction Taskforce.
5.43However, the committee is also persuaded by arguments that more can and should be done, given the science indicating that climate change will lead to increased severity and intensity of weather events over the coming decades.
5.44The committee is of the view that consideration should be given to funding cyclone damage mitigation via a tax offset. This would enable more homes, including those homeowners who may be ineligible for existing subsidies, to be made more resilient, thereby reducing the long-term costs of insurance premiums.
5.45Any offset should be time-limited, restricted to existing homes in particular regions, and apply only to specific upgrades, such as those outlined in the National Emergency Management Agency’s booklet on building, maintaining and insuring a resilient home. Care should also be taken to ensure that home-owners are unable to ‘double-dip’ through other tax offsets, such as capital gains tax, or through other, government-funded programs to subsidise the cost of cyclone-proofing their homes, such as the Household Resilience Program.
5.46As an alternative, the Australian Government could consider providing direct subsidies to eligible households in Northern Australia to engage in household resilience and mitigation. However, this would require more government resources to administer such a program.
5.47The committee further notes the extensive state and federal government programs that fund, incentivise and otherwise provide support for improving resilience against climate-related damage to home and businesses. In particular, witnesses acknowledged the positive impact of the Resilient Homes Program and Strata Resilience Program on improving cyclone and flood-related building resilience. There was strong support in evidence to this inquiry for programs such as these to become longer-term programs rather than offered as a one-off. The House of Representatives Standing Committee on Economics in its Flood Failure to Future Fairness report noted a significant body of evidence calling for policy solutions to reduce flood risk. This evidence proposed increased government investment in community mitigation infrastructure and expansion of the federal-Queensland Resilient Homes Fund beyond the southeast corner of Queensland. That report noted that ‘insurers may be more willing to re-enter the local market’ if they determine that resilience measures have materially reduced flood risk.
5.48Given resilience and mitigation measures over the long-term reduce underlying risk and, therefore, premium costs, the committee concurs with the strong evidence given to both inquiries calling for a national, ongoing program to improve household resilience and mitigation.
5.49The committee strongly recommends that the Australian Government support an ongoing, national resilience program on a permanent basis.
5.50The committee recommends that the Australian Government consider a range of measures to improve resilience and mitigation of high-risk homes in Northern Australia, including:
providing targeted tax offsets for eligible households in Northern Australia; and
providing direct subsidies to eligible households in Northern Australia.
5.51An additional issue is the matter of taxation applied to insurance premiums. Currently, most insurance premiums are subject to state and territory stamp duty of around 10 per cent. Once stamp duty is added to the total, an additional 10 per cent is calculated for the Goods and Services Tax (GST).
5.52And of course, as insurance premiums rise, the tax also rises, creating a doubling up effect on consumers. The median cost of premiums for combined home and contents insurance increased by 11 per cent for north Queensland and the Northern Territory in 2023. The cost of insurance overall across Australia rose by 11 per cent in the twelve months to the December 2024 quarter. Given the increasing frequency and intensity of severe weather events, we can expect the cost of insurance to only increase over the coming years.
5.53The committee believes that greater investigation of the impact of current taxation methods on insurance premium pricing would be beneficial.
5.54The committee recommends the Australian Competition and Consumer Commission, in its insurance monitoring role, investigate the impact of current taxation methods on insurance premium pricing.
Insurance monitoring
5.55The ACCC, in its insurance monitoring role, provides reassurance to committee members and the public that the Cyclone Reinsurance Pool is contributing to lower insurance premiums as offered by insurers to consumers. The ACCC’s reports are an important accountability mechanism for insurers and give an indication as to whether the pool, as a policy lever, is working.
5.56Given the pool has only just commenced fully operating, the scale of changes required to see it operate more effectively, and broader inflationary pressures leading to increases in the cost of insurance, it is more important than ever that the ACCC is funded to continue this important role. As such, the committee takes the view that the ACCC should continue performing this important function until at least 2030, when the second scheduled review of the Terrorism and Cyclone Insurance Act 2003 is due to occur again.
5.57In addition, the committee considers that the ACCC’s role should be expanded to monitor the extent to which mitigation measures are reducing the cost of insurance premiums. This expanded role is crucial, in light of increased spending by governments in the form of billions of dollars on mitigation and resilience. The insurance industry has called for more spending on mitigation, arguing that this is the major factor to decrease the cost of premiums. If governments are to spend (or are already spending) this much money on mitigation and resilience, certainty should be provided that taxpayers’ money is achieving the intended effects by improving insurance affordability.
5.58The committee recommends that the Australian Government fund the Australian Competition and Consumer Commission to continue its insurance monitoring role until at least 2030.
5.59The committee recommends that the Australian Government fund and expand the remit of the Australian Competition and Consumer Commission to examine the extent to which insurers are reducing insurance premiums in response to mitigation and resilience measures.
5.60Finally, given the committee’s recommendations that the scheduled review consider many of the issues raised in evidence to this inquiry, the committee calls on the Australian Government to commit to publicly releasing the report of the upcoming review. This would provide certainty to insurers, policy-holders and committee members that the review has given serious consideration to these issues before forming a view on the future of the Cyclone Reinsurance Pool.
5.61The committee recommends that the Australian Government publish the report of the 2025 scheduled review into the Terrorism and Cyclone Insurance Act 2003 once the report is finalised.
Ms Marion ScrymgourMP Chair
| Hon Warren EntschMP Deputy Chair
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