Australia – Homeowners in cyclone-prone regions of northern Australia are seeing a significant reduction in insurance premiums, thanks to the Cyclone Reinsurance Pool (cyclone pool). A recent study from the Massachusetts Institute of Technology (MIT) revealed that average home insurance premiums have dropped by 10%, with properties at the highest risk experiencing reductions of up to 27%.
The study, conducted by MIT PhD candidate Adam Solomon, highlights the cyclone pool’s positive impact on both premium costs and insurance availability. According to the research, insurance availability increased by 6% for average homes in northern Queensland and by 11% for the highest-risk properties.
In his paper titled “Insuring Correlated Climate Risk: Evidence from Public Reinsurance,” Solomon explored how reinsurance in Australia’s home insurance market helps mitigate the financial impact of extreme weather events like cyclones.
“Reinsurance through the cyclone pool is providing much-needed relief for homeowners in regions vulnerable to cyclones, making insurance more accessible and affordable,” Solomon explained.
While some smaller insurers have yet to join the cyclone pool, Solomon noted that this is unlikely to have a major effect on premium costs. The pool already includes Australia’s largest insurers, covering 95% of policies.
The Australian Reinsurance Pool Corporation, which manages the cyclone pool, is currently reviewing premium rates. Any changes are expected to be minimal and will take effect from 1 April 2025.
As climate risks intensify, the cyclone pool continues to play a critical role in supporting homeowners and making insurance more viable in high-risk areas.
