27 Jul 2023
The Cyclone Reinsurance Pool explained – what’s changing and why

The Cyclone Reinsurance Pool explained – what’s changing and why

  • The government has established a Cyclone Reinsurance Pool to provide reinsurance to insurers
  • It’s designed to improve accessibility and affordability of insurance to people in cyclone-prone areas
  • QBE is required to transfer all cyclone risk policies to the Cyclone Reinsurance Pool in 2023

Calculating an insurance premium is complex. It’s made up of several components – some set by us – and others that include taxes, like the NSW Emergency Services Levy, GST and stamp duty.

The reinsurance premium we pay to the ARPC will be factored into the calculation of a customer’s insurance premium.

What’s the Cyclone Reinsurance Pool?

The Cyclone Reinsurance Pool offers reinsurance to insurers to transfer their risk for cyclones and cyclone-related flood damage including wind, rain, rainwater run-off, storm surge and riverine flood.

The Pool is administered by the Australian Reinsurance Pool Corporation (ARPC), backed by an annual $10 billion federal government guarantee1.

It’s designed to improve accessibility and affordability for householders and small businesses in cyclone-prone areas such as Northern Australia.

What is reinsurance?

Reinsurance is where one party, the reinsurer, in consideration of premium paid, agrees to indemnify another party, the reinsured, for part or all of the liability assumed by the reinsured under a policy (or policies) of insurance.

Close up of woman's hand using calculator to check her insurance premium

So, for QBE policies, reinsurance is where the ARPC indemnifies QBE, for liability under a policy(s) of insurance.

When is QBE joining the Cyclone Reinsurance Pool?

QBE joined the Cyclone Reinsurance Pool on 21 June 2023, and plans to transfer policies into the Pool progressively throughout the year.

QBE is required to transfer all cyclone risk policies to the ARPC by 31 December 2023.

What’s changing under the Cyclone Reinsurance Pool?

The Pool will cover cyclone and flood damage for the duration of a declared cyclone until within 48 hours after the end of a declared cyclone.

QBE insurance products and claims processes won’t change. The only change is to our reinsurance arrangements for cyclone risk.

Will customer premiums change?

While the aim of the Cyclone Reinsurance Pool is to reduce insurance premiums for cyclone-exposed customers by lowering reinsurance costs, savings may be impacted by inflation and other natural disasters.

Over time, the ARPC intends to maintain incentives for risk reduction, and offer discounts for people who have mitigation measures in place for their properties2.

We use many factors to set your premium. We look at things like the chance of you making a claim under your policy, the cover options you’ve chosen, the overall cost of claims we expect to pay, and our expenses of doing business, as well as other commercial factors.

Your premium also includes GST and government fees, duties and charges. The reinsurance premium we pay to the ARPC will be factored into the premium of any ceded policies.

Learn more about The Cyclone Pool on the ARPC website.

1 ACCC report, page 11: https://www.accc.gov.au/system/files/ACCC%20Insurance%20Monitoring%20Report%202022.pdf
2 https://arpc.gov.au/reinsurance-pools/cyclone/

The advice in this article is general in nature and has been prepared without taking into account your objectives, financial situation or needs. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice.

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