The Federal Government this week released details of its proposed $10 billion cyclone reinsurance scheme, which is a potential game-changer for those struggling to get affordable insurance coverage in cyclone-prone north Queensland.
The proposed scheme would establish a reinsurance pool for cyclones and related flood damage, backed by a $10 billion government guarantee.
The scheme would be open to households, residential strata and small business, including mixed strata schemes where at least 80% of floorspace is used mainly for residential purposes.
If you want to have any input to how the scheme will operate and who can qualify, you have until 17 December 2021 to have your say. The details of the draft legislation and how to respond can be found at https://treasury.gov.au/consultation/c2021-226351
The cyclone reinsurance scheme is designed to lower insurance premiums for households and small businesses by reducing the cost of reinsurance, which is a significant component of premiums.
In theory, the scheme will allow insurers to reinsure cyclone risks at a lower cost than in the private reinsurance market. But for it to succeed, it will require the insurers to pass on those savings in the form of lower premiums. It remains to be seen how the market will react, especially with many insurers basically abandoning the north because of the increasing risk of more frequent and more violent tropical storms and flooding.
We’ve heard horror stories from the north, where smaller strata schemes are being quoted insurance premiums higher than the weekly rent their lots can attract.
There have been cases where insurance premiums have jumped more than 150% year-on-year, for years in a row.
The situation has reached the point where some bodies corporate simply choose not to insure or to insure for as much as they can afford, leaving the balance uninsured – a form of reinsurance roulette that no scheme should have to face.
Doubtless there will be some devil in the detail of the draft legislation, but after years of battling the insurance giants this is finally a step in the right direction.