A national “reinsurance pool” is needed to cover Australian residents that continue to reel from floods over the past year that caused billions in damage, according to a report issued Monday by the government’s National Disaster Insurance Review.
The results of the long anticipated report on the floods that ravaged Queensland and caused 35 deaths said that flood insurance should be made available, but not mandated, for all homeowners and that a government-backed reinsurance facility would offset carrier risk.
“[Primary] insurers will need access to a government-sponsored reinsurance facility if they are to deliver flood insurance discounts without compromising their own commercial positions,” the report says.
“The fact that all home insurance policies cover storm damage including related water damage but many do not cover flood damage, which distinction is seen as arcane and artificial by many, led to a community backlash against insurers during 2011 and considerable distress, financial loss and disillusionment for many insured homeowners,” the report says.
The pool would act as a facultative/obligatory treaty reinsurance vehicle and would allow carriers to decide for each individual property whether to cede the portion of the risk above the first loss, or retain the whole risk.
The report adds that an agency be created to manage the reinsurance pool that will be supported by a guarantee from the Australian government. In the event of a shortfall, the federal government would then “seek reimbursement” from the effected state or territory.
Though lengthy, the report does not spell out how the Australian government would back the reinsurance facility.