NAT: Reinsurance Pool Legislation

This article provides the latest update about the reinsurance pool legislation.

The Federal Government has outlined its proposals for the Cyclone and Cyclone-related Flood Reinsurance Pool proposed legislation. Northern Australia Insurance Lobby (“NAIL”) has actively lobbied the Federal Government for changes to previous draft legislation so it is fit for purpose for consumers in Northern Australia.

What’s Changed?

We are pleased the Federal Government has made a number of key changes to their final proposed legislation including:

1. Commercial strata threshold: The threshold for what is defined as a commercial strata building has increased from more than 20% commercial to more than 50% commercial.
2. Commercial strata building sum insured limit: Commercial strata buildings will now have the same treatment as other commercial buildings ($5 million sum insured limit) – previously the % commercial threshold.
3. The Actual Savings: The government media release provides greater transparency on the actual savings that policy holders are predicted to receive.
4. Review: Commitment by the Federal Government to a review the reinsurance pool after twelve months which will consider policy holders that are not currently eligible.

What’s Missing from this initial legislation?

Consumers not covered by the reinsurance pool include:

1. Accommodation Buildings: Short-term accommodation with a sum insured over $5 million sum insured: We have concerns about the exclusion of accommodation buildings adversely impacting tourism, which plays an important part in certain economies in Northern Australia. This will include a number of buildings primarily used for accommodation purposes on Hamilton Island, Airlie Beach, Townsville, Cairns, Darwin & other tourism hotspots.
2. Aged care (and other care) facilities are considered commercial and therefore are limited to a sum insured of $5 million, despite the fact they are the primary residence for the elderly people and those with other care needs who reside in them. By excluding aged care and other care facilities with a sum insured over $5 million you increase the cost of care for those who reside and use those buildings for residential purposes.
3. Limit of $5 million for commercial buildings: NAIL believes this sum insured for commercial buildings is too low and will not cover enough consumers

We believe the properties in point 1 above should be considered for inclusion after the agreed review. The properties in points 2 and 3 should not be forgotten or ignored and also be considered for inclusion at a later date.

Should the legislation pass?

While there are consumers NAIL believes should be included in the reinsurance pool who will miss out on this current legislation, it is important to consider the legislation does already cover a broad range of consumers. Sources from within the Federal Government expect the reinsurance pool will cover upwards of 96% of small to medium enterprise (SME) policyholders.

The role of addressing market failures does not sit solely with the Federal Government and insurance companies have an important role to play. With the Federal Government reinsurance program covering a significant portion of properties in Northern Australia, NAIL hopes this will free up capacity for private reinsurers and insurance companies to step in and fill the void by providing affordable insurance for consumers who are not currently eligible for the reinsurance program.

It would be extremely disappointing if the insurance industry decided to only insure properties covered by the Federal Government reinsurance program, thus creating an even greater crisis for buildings that are not eligible to be part of the proposed reinsurance program. This needs to be monitored.

NAIL also believes State Governments should review stamp duty charges in line with the
recommendations by the Australian Consumer & Competition Commission (ACCC) to abolish stamp duty for home, contents and strata insurance. Further, a review of requirements under strata legislation to insure properties for full replacement value should also be considered.

While NAIL still has outstanding concerns with the proposed legislation, considering the majority of policyholders are covered by the reinsurance pool and there are predicted reasonable savings, we believe passing the legislation in its current form as a Stage 1, with further Stage 2 under consideration after the 12 month review.

A Federal Government review after twelve months ensures that any unaddressed and ongoing insurance market failures in Northern Australia will be considered by the Australian Reinsurance Pool Corporation at this time and will benefit from the review of the initial phase.

Further information about Northern Australia Insurance Lobby can be found on the Northern Australia Insurance Lobby website.

For more information about this media release, contact Tyrone Shandiman on 0419 012 262 or [email protected]. Any unquoted statement in this release can be quoted to NAIL Co-Chair Tyrone Shandiman.

Northern Australia Insurance Lobby
E: [email protected]

Have a question or something to add to the article? Leave a comment below.

Embed

Read next:

• NAT: Reinsurance Pool Design – Challenges
• NAT: Valuable Data and Insights Revealed in New Strata Insurance Report

Visit Strata Insurance OR Strata Topics by State pages.

After a free PDF of this article? Log into your existing LookUpStrata Account to download the printable file. Not a member? Simple – join for free on our Registration page.