Australia has finalised the design of a reinsurance pool for cyclone and related flood damage, offering discount on premiums.

As per the government’s announcement, the reinsurance pool will cover more than 880,000 residential, strata and small business property insurance policies in northern Australia.

The reinsurance pool is backed by a $7.1bn (A$10bn) Commonwealth guarantee, which will be reinstated annually. The Australian Reinsurance Pool Corporation (ARPC) will administer it from 1 July 2022.

Over the course of ten years, the pool is expected to provide a discount of up to $2.05bn (A$2.9bn) on eligible policies.

Australian homeowners will be eligible for discounts of up to 46%, strata properties up to a 58% discount and SMEs up to a 34% discount.

Announcing the establishment of the reinsurance pool Australian Prime Minister Scott Morrison said: “We have listened closely to our team including Warren Entsch and Phil Thompson so we can cut the cost of insurance for households, strata and small businesses. This is about making northern Australia even more resilient and liveable.”

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The Australian government plans to introduce legislation for the reinsurance pool in the first week of Parliament in February 2022.

The Insurance Council of Australia (ICA) welcomed the move and said that more information is needed from the ARPC before insurers can calculate the premium costs.

ICA CEO Andrew Hall said: “We expect insurers will take advantage of the Pool to provide additional cover for households and small businesses in northern Australia most at risk, but the next step of commercial negotiations with the ARPC will need to be completed to fully understand the impact on premiums.

“To provide long-term sustainable reductions in premiums Australian governments – both state and federal – need to invest in stronger homes and infrastructure that makes communities more resilient to worsening extreme weather.

“We must also improve resilience standards in building codes, remove state insurance stamp duties and levies, and make better land planning decisions that factor in worsening extreme weather and its impacts.”