Aussie cyclone pool ARPC does the trick: premiums down, success rates up

The state-backed cyclone reinsurance pool Australian Reinsurance Pool Corporation (ARPC) may have done the trick, cutting policyholder premiums by as much as 38% and improving insurance quote success rates by as much as 14 points in the highest-risk regions. 

“The cyclone pool is improving insurance affordability and availability in high cyclone risk areas,” authors of a study at the ARPC have claimed. 

Authors see “a meaningful signal that cyclone pool premium rates are achieving their intended objectives and leading to significant premium reductions for medium and high-risk policyholders.”

Study authors went online in search of hypothetical homeowner and SME insurance quotes from seven participating insurers, bringing a consistent set of risk profiles each quarter, starting prior to the launch of the ARPC in mid-2022. 

Homeowner policies, some 88% of ARPC underlying premium, saw a major decline in quoted premium from pre-launch to January 2024, increasing in scale for the higher-risk regions. 

The reduction came to a head-turning 38% for properties in the highest risk group of five crafted by authors on the basis of the ARPC wind risk bands. The reduction was 22% for the next-safest risk group, 12% for the third and low single digit for the fourth. The lowest-risk group saw an 8% increase in premium, which authors claim stem from unrelated broad market trends. 

Quote success rates, the portion of submissions resulting in successful quotes, improved across all risk bands, with “meaningful increases” for medium and high-risk bands post pool entry, authors claimed. 

Rate improvements were similar for SME policies covering buildings and contents (2.8% of pool premiums). Rates galloped further upwards for business interruption policies (0.7% of ARPC underlying premium). 

Survey data was based on approximately 750 home quotes collected from each insurer each quarter prior to April 2023 and 1500 quotes from April 2023 onwards plus approximately 3000 quotes collected each quarter for SME.

Australia’s cyclone pool commenced operations from 1 July 2022, with the first insurers joining on 1 January 2023, and more onboarding throughout the year, some with staggered risk transfer. By end-2023, the pool covered about 95% of eligible risks, with the remainder to join the pool by the end of 2024.

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