Thursday 10 February 2022 - We're still working for you on a cyclone Reinsurance Pool

A message from RACQ CEO David Carter

As a member-owned organisation, we are always looking out for the best interests of Queenslanders.

You may have seen or heard reports this week about plans to reduce the cost of property and business insurance in north Queensland.

Specifically, the Federal Government has been working closely with insurers like RACQ to become a reinsurer for cyclone-related damage. Reinsurance is insurance for insurers.

The idea is the Federal Government would run a 'not for profit' scheme to provide cheaper cyclone reinsurance to RACQ.

Any benefit received by RACQ would then be passed on to our members.

I've said for some time now that the idea has merit because we share the same objectives as the Federal Government.

We welcome all initiatives that can make a difference to your premiums. We know the cost of insurance is greater in the north, primarily driven by cyclone risk and increasing impacts of natural disasters.

It is why for nearly a year, RACQ has been working with the Government, advocating for an optimal reinsurance design scheme that will maximise benefits for our members.

This week, the Government introduced legislation in Parliament as a key step in making the pool a reality. The Government also announced the size of premium reductions it expected the pool would deliver for north Queenslanders.

I want to give you an overview of how RACQ views the current situation:
1. RACQ is currently unable to validate the premium reductions that have been reported in the media

Even though RACQ has seen legislation, we have not seen the Government's premiums. That means we are yet to see what the Government proposes to charge RACQ for covering cyclone damage. Until we receive this information, we cannot make an assessment of what the pool will do for our members' premiums.

2. There is still a lot of work to do to establish a cyclone reinsurance pool

Unfortunately, this is not a quick and simple initiative. This legislation needs to be passed in both houses of Parliament. Insurers will need to keep talking to the Government, change their systems, processes and reinsurance arrangements to get ready for the pool. But if RACQ knows the pool will benefit you, we want to join it as soon as practically possible.

3. We don't believe the pool can be effective on its own

We've examined the legislation and believe the pool only provides RACQ with partial cover. We will only be able to recover from the pool for damages that occur while the weather system is an actual cyclone and shortly after it's downgraded. The pool will not help RACQ or our members for damages that occur two days after the system becomes a tropical low (ex-tropical cyclone). All this means is that RACQ will need to buy separate reinsurance from the market to plug the pool's coverage gaps. In addition, we need to see the Government invest in projects that will lessen the impact of disasters. We need to see a significant boost in disaster resilience funding to better protect north Queensland.

Another measure that will make a difference is the removal of stamp duty from insurance policies. Perversely, you pay more tax as your cost of insurance increases, and this isn't right or fair.
We will keep you updated as the policy develops and continue to push for the best outcome for our members.

Wednesday 12 Jan 2022 - RACQ fights for north Queensland in submission on Cyclone Reinsurance Pool Bill

RACQ has once again strongly advocated for its north Queensland members, making a submission on the Federal Government’s draft Cyclone Reinsurance Pool legislation.

RACQ CEO David Carter said the Club maintained its support for a well-designed pool as a part of the insurance solution in the north.

“We’re engaging with Government in the interests and wellbeing of our members and we believe a pool has the potential to work for north Queenslanders,” Mr Carter said.

“However, resilience must remain at the core of keeping insurance accessible and affordable. A Cyclone Reinsurance Pool will work best when it’s running alongside significant multi-year investment in resilience and mitigation.”

Mr Carter commended the Federal Government on adopting many of RACQ’s previous policy suggestions but said the Club was still unable to fully assess how effective the proposed pool design would be because the draft legislation left many unanswered questions.

“We know insurers will need to purchase cyclone-related reinsurance and the Government intends for the pool to be budget-neutral over time, but the draft Bill and associated materials didn’t contain any pricing or cyclone modelling information,” he said.

“The draft legislation also contains a number of issues that could work against the Government’s policy objective of improving accessibility and affordability of insurance in cyclone prone areas.

“For instance, the Pool should reduce how much reinsurance we need against major cyclones and it must also provide certainty and clarity for global reinsurers so they clearly understand exactly what they are covering.”

Mr Carter said RACQ had made a total of 15 recommendations around cost and pricing, coverage and claims management.

“We remain hopeful an effective Pool can be achieved this year however our participation in the Pool is highly likely to take longer given we still don't have the whole picture of how it will operate and no legislation has been passed yet,” he said.

“We look forward to working with the Government on the finer details and resolving several outstanding concerns and challenges.”

RACQ’s full submission to the draft legislation which was released on 3 December 2021 can be found here.

Reinsurance pool timeline

  • 18 June 2021: RACQ submitted to the Federal Treasury the Club’s suggestions on the design of the reinsurance pool.
  • 17 December 2021: RACQ submitted to the Federal Treasury, detailed comment on the Government’s draft legislation regarding the reinsurance pool.
  • February-March 2022 (estimated): Legislation could be introduced and passed.
  • January – June 2022 (estimated): Further consultation with the Federal Treasury on other details such as pricing.
  • 1 July 2022: Reinsurance pool start date.

2021 Update

RACQ is committed to supporting our members and their communities

We’ve long been concerned about the affordability of insurance premiums in the North Queensland region – a region we’ve been insuring for more than 50 years. With an increase in severe weather events, we’re seeing larger damage bills and rising reinsurance and rebuilding costs, but even more so, we’re seeing the devastating toll this damage has on our members and their communities. On May 4, 2021, the Federal Government announced a $10 billion fund in the form of a cyclone reinsurance pool, designed to help drive down insurance premiums in hard-hit regions from Rockhampton to the Cape. As this reinsurance pool evolves, we want to keep you - our members - engaged and informed by providing regular, honest, and timely updates. On behalf of our members and the Queensland community, RACQ has tendered a submission to the Federal Treasury on the design of the Federal Government’s northern Australia reinsurance pool. We will continue to provide regular communication on our role in the design of this pool as we work closely with the Government.

Our proposal

RACQ CEO David Carter said while this reinsurance pool is good news for locals, it must be well-designed and part of a broader package to offset the price pressures in the disaster-prone region. Reinsurance is vital for insurers, allowing us to sustainably function as a business and support our members now and into the future. We are proposing a reinsurance pool designed to increase the affordability and accessibility of insurance in high-risk areas, and one that is future-proofed against the increasing impacts of severe weather events. Based on our modelling, a well-designed pool could result in up to a 20 percent discount for homes in medium and high-risk cyclone areas, roughly two-thirds of homes on the east coast, from Mackay to the Cape. Our submission will advocate for the best solution for our members with a promise to return any savings from the pool to our members through reduced premiums. Key submission points:

  • Mandatory national reinsurance pool (all insurers are required to participate)
  • Includes cyclone related flooding and storm surge
  • Implemented after a suitable transition period (at least one year)
  • Priced at the individual property level based on the risk profile of the property and this information be shared with insurers
  • Cover landlords (investment properties for both stand-alone dwellings and strata dwellings)
  • Operate on a continuous basis (i.e. no exit date) given the non-site specific nature of the peril
  • Be flexible on the amount of risk retained by insurers to enable the pool to operate efficiently alongside the insurer’s reinsurance market program and to ensure that smaller insurers are not disadvantaged

You can review RACQ's full submission here.

How we can support you now

At RACQ, we’re always looking for ways to support our members. In 2016, we introduced our Household Cyclone Resilience program, which provides up to a 20 percent discount on the cyclone portion of your insurance premium for those who undertake certain measures to safeguard their homes from cyclone damage. Since the introduction of this program, over 4,000 members have benefited from this discount with savings of more than $1 million. To see how you can reduce your premiums sooner, check your eligibility today.

Check if you're eligible

How the discount works