ARPC rates adjusted

The 2015 Triennial Review of the Terrorism Insurance Act 2003 has resulted in a premium increase for reinsurance provided by the Australian Reinsurance Pool Corporation (ARPC), affecting a 4% rate adjustment for reinsuring CBD-located businesses.

In December 2015, Assistant Treasurer Kelly O’Dwyer issued a ministerial direction to the ARPC outlining an amendments to rates, which will be effective from 1 April.

With a threat of market failure still present in the Australian terrorism reinsurance market, the review put forward 10 recommendations for adjusting the reinsurance pool scheme to ensure financial sustainability.

The adjustment in premium rates are as follows:

Loss of, or damage to, property (s.7(1)(a) of the Act)

  • Tier A property – 16% of premium income
  • Tier B property – 5.3% of premium income
  • Tier C property – 2.6% of premium income

Business interruption (s.7(1)(b) of the Act)

  • Tier A property – 16% of premium income
  • Tier B property – 5.3% of premium income
  • Tier C property – 2.6% of premium income

APRC CEO Dr Christopher Wallace says that the rate adjustment is a necessary step in ensuring the financial sustainability of the ARPC.

“There have been no changes in premium rates since it was established in 2003. What the adjustment is doing is putting ARPC on a financially sustainable basis,” Wallace says.

“The adjustment will ensures that the organisation stays financially sustainable. It is not because of higher risk. The risk hasn’t changed in terms of the cover we are providing to insurers.”

Regarding how this will affect insurers and their policyholders, Wallace says that the increase is minor in relation to overall premiums in Australia.

“There’s $3 billion in premiums across all commercial, private-sector assets in Australia. There will be an extra, approximately $40 million in revenue to ARPC,” Wallace says.

“Because terrorism insurance rates to insurers are a percentage of a percentage, the impact to policy holders is very small.”

“I would encourage brokers to talk to the insurers about what the individual requirements are for pricing that is coming into place,” Wallace adds.

Other recommendations put forward by the review include an increase in maximum industry retention from $100 million to $200 million and an extension of the scope of the scheme to include a broader category of buildings.