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Reinsurance Pool Legislation

The Federal Government has on 7th February outlined it’s proposals for the Cyclone and Cyclone-related Flood Reinsurance Pool proposed legislation. Northern Australia Insurance Lobby (“NAIL”) have 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 ($5million 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 $5million sum insured: We have concerns about the exclusion of accommodation buildings adversely impacting tourism, which plays an important part of 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 $5million, 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 $5million you increase the cost of care for those who reside, and use, those buildings for residential purposes

  3. Limit of $5million 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 3should 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 from 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) policy holders.


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 crises for buildings that are not eligible to be part of the proposed reinsurance program. This needs to be monitored.


NAIL also believes the State Governments should review stamp duty charges in line with the recommendations by the Australian Consumer & Competition Commission 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 policy holders 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 review after twelve months by the Federal Government 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 our website https://www.nail.org.au/ For more information about this media release, contact Tyrone Shandiman on info@nail.org.au.

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