Small Business Ombudsman Bruce Billson is backing the federal government’s new $10 billion reinsurance scheme, saying it will make insurance premiums more affordable for businesses in northern Australia.
The $10 billion reinsurance pool, announced on Tuesday, will cover cyclone and related flood damage in northern Australia from mid-2022.
The fund will act as a government guarantee to help reduce insurance premiums for small businesses, households and strata by over $1.5 billion over 10 years, and is expected to cover 500,000 eligible property insurance policies.
Billson tells SmartCompany the federal government’s proposal “is an important step forward in addressing what is a complex area”.
“It responds well to natural disaster considerations in northern Australia, but there is a need to keep working on insurance issues because it remains too hard to get and too expensive for too many small businesses,” he says.
In practice, the fund will help flatten out the peaks in insurance claims that arise after a natural disaster event, and bring greater consistency to the price of premiums.
“It acts as insurance for the insurers and therefore gives them some comfort and confidence about the products that they offer and takes pressure off premiums,” Billson says.
Gap in the insurance market
A government-funded natural disaster reinsurance pool is one of a range of recommendations that came out of the Australian Small Business and Family Enterprise Ombudsman’s (ABFSEO) 2020 insurance inquiry.
The report found that small businesses find it difficult to access insurance or access affordable insurance as insurers become more risk averse due to a rise in extreme weather events.
To ease the cost of premiums, the report recommended an expansion of the Australian Reinsurance Pool Corporation (ARPC) to provide reinsurance for all natural disasters for commercial property insurance.
The ARPC was established in 2003 following significant changes to terrorism-related insurance in the wake of September 11.
Expanding that pool to also cover natural disasters would help fill the gap in the insurance market, which has been widening as insurers become more risk averse to the impacts of climate change, the report found.
Announcing the reinsurance pool on Tuesday, Prime Minister Scott Morrison said the plan was drafted in collaboration with local MPs, senators and residents in northern Australia.
“Homeowners and businesses have been faced with crippling insurance costs, and in some cases, can’t get insurance at all,” Morrison said.
“Our plan will give more Australians in cyclone-prone areas access to affordable insurance.”
The reinsurance pool will cover cyclone and flood related damage in northern Australia from July 1, 2022.