09/06/2024 | Press release | Distributed by Public on 09/05/2024 22:03
6 September 2024
At the request of the Assistant Treasurer, Australian Reinsurance Pool Corporation (ARPC) has commissioned analysis and released an actuarial report modelling the impacts from a change to the coverage period for the Cyclone Pool. ARPC's role is to administer the Cyclone Pool as defined in the Terrorism and Cyclone Insurance Act 2003 and does not have the authority to make changes to the coverage period.
The Cyclone Pool currently covers cyclone and related flood damage arising during a declared cyclone event, which lasts from the time a cyclone begins until 48 hours after the cyclone ends. The report explores the impacts of extending the current 48-hour cyclone coverage period to 168-hours (7 days) based on modelling provided by Finity Consulting and Risk Frontiers.
The actuarial modelling indicates that extending the coverage period would increase the average annual loss (AAL) of the Cyclone Pool by $20 million to $35 million, or approximately 5%. The Cyclone Pool will need to collect additional premiums through premium increases to cover the increased claims costs if such a change was made.
The report explores a specific scenario of how the Cyclone Pool's premium rates might be adjusted, consistent with the current premium rating formula and pricing principles, to cover the extended coverage period. Under these scenarios, the analysis indicates:
As set out in the legislative objectives of the Cyclone Pool premium rates, premiums for medium to high cyclone risk policyholders will be kept as low as possible and lower risk policyholders will be charged premiums consistent with expected private market rates.
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