Cyclone insurance back-up scheme likely off-limits for Qld floods

But the Commonwealth reinsurance pool can only be tapped by insurers for cyclone-related claims incurred up to 48 hours after a cyclone is declared over by the Bureau of Meteorology. And the Australian Reinsurance Pool Corporation has said that deadline for Cyclone Jasper was reached at 12am on Saturday.

By Tuesday, at least 1870 claims had been lodged with insurers and the number was rising, and some providers are concerned large parts of the damage will have been incurred after that deadline.

That raises the prospect of insurers or their own private reinsurance contracts bearing the cost of claims, which could push up premiums when policies are renewed, one senior industry figure told The Australian Financial Review. “There will be an industry reaction to pricing,” they said.

David Carter, chief executive of RACQ, which has a major insurance brand in Queensland, said some insurance claims would be covered by the federal pool. But he highlighted the organisation’s concerns, aired in the past two years when the pool was initially debated and designed, about the “48-hour claims period” time limit.

RACQ’s own private reinsurance program would cover claims from Jasper not covered by the federal pool.

Private reinsurance contracts for insurers typically have a seven-day claims limits, and the insurance sector had been divided whether the 48-hour limit under the federal pool was too restrictive.

Before the establishment of the Commonwealth reinsurance venture, the Australian Competition and Consumer Commission had warned it did “not consider that a government reinsurance pool would be an effective way to address affordability issues”.

The office of Assistant Treasurer Stephen Jones, responsible for the pool, did not answer questions about the pool’s effectiveness given the time limits.

“The focus right now is ensuring people are safe, ensuring property is protected as well as it can be, and once we get to the clean-up phase where people will start making insurance claims, that is a matter for insurers and their customers,” his office said.

Among expensive issues with claims in this latest flooding will be the possibility of homes being inundated with “blackwater”, industry slang for water containing sewage or other contaminants. Such claims are more expensive because they require sanitation and additional cleansing of properties.

Insurance claims will elevate as floodwaters recede. As of Tuesday, Sure Insurance – a specialty North Queensland brand backed by US insurer Liberty – had 755 claims; RACQ 299; Allianz 150; and IAG 155. Suncorp, one of the biggest insurers in the region, only had figures from Monday of 500 claims.

Insurers incur different damage levels before claiming against their own private reinsurance cover.

Presentations filed by Suncorp, for instance, indicate it would typically wear the first $350 million in claims before its disaster reinsurance kicks in. It also has additional protection from a quota share arrangement for Queensland homes, sharing both the premiums and disaster costs in the state for households.