Michael Sukkar (Deakin, Liberal Party, Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

This bill will establish a reinsurance pool for cyclones and related flood damage. The pool will be backed by a $10 billion annually reinstated Commonwealth guarantee and be administered by the Australian Reinsurance Pool Corporation (ARPC) from 1 July 2022.

Importantly, this bill will deliver on the government's commitment to improve the accessibility and affordability of insurance for households and small businesses in cyclone-prone areas in northern Australia.

Improved access to affordable insurance is vital to the economic prosperity and resilience of households and small businesses alike.

Over 10 years, the pool is estimated to reduce premiums by $2.9 billion.

The pool will provide coverage to:

The pool is expected to cover more than 880,000 household, strata and small business property insurance policies in northern Australia. The government will also expand the coverage to include small business marine property insurance policies from 1 July 2023.

The pool will cover claims from damage caused by a cyclone that commences during a declared cyclone event. This includes wind, rain, rainwater, rainwater run-off, storm surge and riverine flood damage, where these hazards are covered under the policyholder's insurance policy. A cyclone event will be declared by the ARPC to commence when the Bureau of Meteorology (BoM) advises a cyclone has formed and conclude 48 hours after the BoM advises the cyclone has ended.

The pool will generate savings by operating on a cost-neutral basis, leveraging the Commonwealth guarantee and taking advantage of economies of scale. The pool is also expected to increase competition by encouraging greater insurer participation in cyclone-prone areas and support higher levels of insurance coverage by property owners.

The bill makes it mandatory for insurers with eligible policies to participate in the pool, except for those insurers who write only a minimal amount of insurance outside of areas with nil or negligible cyclone risk. Importantly, it provides an 18-month transition period for large insurers and an additional 12 months for small insurers. Mandatory participation will ultimately ensure the pool provides the greatest possible reductions in premiums.

In the first three years of operation, the pool will pay the entire eligible claim above the policyholder excess. This will support insurer transition and maximise the premium reductions. The pool will then operate on a risk-sharing arrangement with insurers, with the level of risk retention set by ministerial directions. The pool will continue to cover a significant proportion of eligible claims.

The Commonwealth guarantee will be called upon if the pool and the Australian Reinsurance Pool Corporation's own resources are insufficient to pay eligible claims. If the $10 billion Commonwealth guarantee is likely to be exceeded following a single cyclone event or a series of cyclone events within a single year, the government will therefore be required to increase the guarantee to support the pool to meet all its obligations.

The savings generated by the pool will be targeted to policyholders with medium to high exposure to cyclone-hit risk to drive their premiums down as low as possible, while maintaining incentives to reduce and mitigate risk. Targeting savings ensures that the policyholders facing the largest insurance affordability pressures receive the greatest benefit.

The bill also contains a suite of mechanisms to ensure the pool is delivering for northern Australia. The Australian Reinsurance Pool Corporation will be required to publish an annual financial outlook report that informs government about the current risk affecting the pool's liabilities and provides added scrutiny of premium adequacy and risk-preparedness activities. A regular formal review will evaluate the performance of the pool, ensuring it is fit for purpose in improving insurance affordability in cyclone-prone areas.

Finally, following a direction from the government, the Australian Competition and Consumer Commission has begun work to monitor and collect data to ensure that savings are passed through to policyholders and that the reinsurance pool ultimately delivers on its intended outcomes, reducing premiums for those with insurance policies in northern Australia.

Full details of the measure are contained in the explanatory memorandum.

Debate adjourned.