ACIL Raises Alarm About Inequitable Premium Modelling for Cyclone Reinsurance Pool

The Australian Consumers Insurance Lobby Inc (ACIL) is deeply concerned that residents in Northern Australia are subsidising free cyclone coverage for Southern parts of Australia, despite having a history of cyclones or the potential for future cyclones due to changing weather patterns.

Last month, ACIL released a comprehensive report titled "Under the Lens: ACIL's First Evaluation of the Cyclone and Cyclone-Related Flood Reinsurance Pool." The report highlighted a historical instance from January 1950 when cyclone TC119 initially made landfall on the Gulf of Carpentaria coast and eventually reached Sydney as a category 1 system approximately three days later. ACIL highlights that even though category 1 cyclone events are unlikely to cause significant wind damage, the potential for substantial water damage claims resulting from leaking roofs and buildings underscores the critical need to properly account for such occurrences.

The Cyclone Reinsurance Pool provides cyclone cover to eligible buildings Australia wide, but not all policyholders are required to pay premiums. For instance, on the east coast, only policyholders located north of Port Macquarie are obligated to pay premiums.

ACIL Chairperson, Tyrone Shandiman “Sydney gets free cyclone cover for free, even with its history of cyclone events, leaving North Queensland and Northern Australia to foot the bill. This isn't a matter of North vs South - it's about fairness. If a cyclone were to strike Sydney once more and the city accessed funds from the Cyclone Reinsurance Pool without making any contributions, it would undoubtedly spark outrage in Northern Australia. Our aim is to ensure that the North, already grappling with exorbitant insurance premiums, is not subsidising free coverage for southern regions of Australia that could have a claim.”

ACIL expressed its concerns to Assistant Treasurer Stephen Jones, who represents the Sydney electorate of Whitlam. Regrettably, the initial meeting did not result in a receptive response from the Assistant Treasurer, underscoring the necessity for heightened advocacy and increased awareness regarding this issue. ACIL has also turned to the Joint Select Committee for Northern Australia, pressing an urgent need for a revision of the modelling under the pool.

ACIL remains committed to advocating for a fair and balanced approach to the Cyclone Reinsurance Pool. We call upon the Federal Government and Australian Reinsurance Pool Corporation to review the modelling to ensure a fairer approach to the Pool.

REPORT RELEASE: ACIL's First Evaluation of the Cyclone and Cyclone-Related Flood Reinsurance Pool

The Australian Consumers Insurance Lobby Inc (ACIL) is pleased to announce the release of its first comprehensive evaluation report on the Cyclone and Cyclone-Related Flood Reinsurance Pool (the Pool), titled " Under the Lens: ACIL's First Evaluation of the Cyclone and Cyclone-Related Flood Reinsurance Pool".

ACIL's evaluation was less than commendable of the Pool, emphasising a "needs improvement" verdict. The observation that the Pool offers limited to no substantial savings for consumers underscores the urgency for proactive measures to enhance its effectiveness. ACIL calls on policymakers to stay the course and initiate necessary changes before the 2025 review to avoid missing opportunities for timely improvements.

Key concerns raised by ACIL in the report spotlight the inequity where Northern Communities shoulder the financial burden of cover for their southern counterparts. The necessity of a comprehensive review of the current modelling is underscored, highlighting the importance of accuracy and fairness in distributing the pool's benefits. ACIL also provided a less than flattering assessment of insurers' interactions with the Pool.

ACIL's report not only highlights challenges but also offers solutions. Recommendations on reducing premiums linked to cyclone cover are put forth. ACIL advocates for an expanded eligibility framework for the pool, a move that encompasses sectors such as marine insurance, which grapples with soaring premiums, high cyclone excesses, and gaps in coverage for cyclone events.

ACIL was in Canberra on 11th & 12th September to meet with Assistant Treasurer Stephen Jones and Joint Select Committee Members for Northern Australia, including, Hon Warren Entsch MP, Mr Luke Gosling OAM MP, Senator Dean Smith, and Mr Andrew Willcox MP.

"We are excited to share the results of our in-depth evaluation of the Cyclone Reinsurance Pool. This report underscores our dedication to ensuring an insurance landscape that truly serves the interests of consumers." states Tyrone Shandiman, Chairperson at ACIL. The discussions we had with the Assistant Treasurer and members of the Joint Select Committee for Northern Australia were receptive, and we expect they will yield tangible benefits for consumers."

This release marks a pivotal moment for the insurance sector in Northern Australia. It lays the foundation for inclusive, affordable, and efficient insurance protection, reinforcing a brighter future for communities across the region.

CLICK ON THE ICON BELOW TO ACCESS THE REPORT:

ACIL's First Evaluation of the Cyclone Reinsurance Pool.pdf

Download PDF • 787KB

NIBA's Post-Quality of Advice Review Actions Scrutinised by ACIL

The Australian Consumers Insurance Lobby Inc. (ACIL) has conducted a comprehensive inquiry into the actions of the National Insurance Brokers Association (NIBA) following its decision to amend the Insurance Brokers Code of Conduct (the Code) in the wake of the Quality of Advice Review by ASIC.

Before the Quality of Advice Reviewcommenced, NIBA proactively introduced amendments to the Code,requiring the disclosure of remuneration details to both individuals and small businesses. However, after the review's conclusion, NIBA altered the disclosure requirements to revert back to the original definition to include only retail clients.

This sequence of events led ACIL to scrutinise whether NIBA used the Quality of Advice Review as a pretext to backtrack on prior commitments, thereby raising legitimate concerns about the association's ethical conduct throughout the review process.

ACIL engagedin constructive dialogueswith NIBA, who demonstrated transparency and cooperation. NIBA clarified that the Code's modification was driven by member feedback following its release. Regarding the timing, NIBA confirmed that the decision was made before the review concluded but was deferred to accommodate potential further changes based on the review's findings.

Key Findings by ACIL:

• It was prudent for NIBA to wait for the review's conclusion to finalise the Code.

• No evidence suggests that NIBA exploited the outcome of the Quality of Advice Review to weaken the Code's impact.

• The updated remuneration disclosure requirements in the 2022 Insurance Brokers Code of Practice, offer enhanced consumer benefits compared to the 2014 version.

• ACIL emphasises, however, that NIBA could improve its communication to mitigate misunderstandings. Ideally, NIBA should have clearly communicated its intent to amend the Code both at the time of the decision and during the review.

On the subject of disclosure, ACIL conveyed its support to NIBA for comprehensive remuneration disclosure for all clients, both retail and wholesale, during consultations. ACIL Chairperson Tyrone Shandiman stated, " If insurance commissions are an equitable method of compensation, why not prominently present this information within key documents in 20-point bold font, to all consumers, irrespective of their classification?”

ACIL acknowledges that the new Code brings about favourable outcomes for consumers, featuring clauses that enhance transparency, accountability, and ethical conduct.The Code's effectiveness ultimately depends on brokers actively promoting and implementing its provisions, whilealso holding themselves and their colleagues accountable for compliance.