Overview

The Terrorism Insurance Act 2003 was enacted in response to the global events following the September 11, 2001 terrorist attacks, which led to insurance companies withdrawing coverage for terrorism-related incidents. The Act established the Australian Reinsurance Pool Corporation (ARPC) to provide insurance cover for eligible terrorism losses and to carry out any other functions as prescribed in the Terrorism Insurance Regulations 2003. The Terrorism Insurance Amendment (Cyclones and Related Flood Damage) Regulations 2021 were introduced to amend the Terrorism Insurance Regulations and confer the ARPC with the new function of preparing to operate a reinsurance pool for cyclones and related flood damage. The aim of these amendments is to improve the accessibility and affordability of insurance by covering property damage caused by cyclones and related flooding, with the scheme intended to commence from 1 July 2022. The Regulations were made under the authority of the Governor-General and do not engage any of the applicable rights or freedoms, as stated in the Statement of Compatibility with Human Rights.

Scope and Application

The Terrorism Insurance Act 2003 applies to the Australian Reinsurance Pool Corporation (ARPC), which is established under the Act to provide insurance cover for eligible terrorism losses. The Act also allows for the creation of a reinsurance scheme for cyclones and related flood damage through the Terrorism Insurance Amendment (Cyclones and Related Flood Damage) Regulations 2021. This amendment allows the ARPC to prepare to operate a reinsurance scheme for cyclones and related flood damage if agreed by the Government. The Regulations, which amend the Terrorism Insurance Regulations 2003, confer the ARPC with the new function of preparing to operate the reinsurance scheme. The Regulations are made under section 43 of the Terrorism Insurance Act 2003 and will commence on the day after the instrument is registered on the Federal Register of Legislation. The Regulations are intended to provide sufficient time for the ARPC to commence preliminary planning and undertake preparatory work so that the reinsurance scheme can be operational from 1 July 2022 if agreed by Government. The Regulations are estimated to have a negligible impact on compliance costs. The Statement of Compatibility with Human Rights prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 indicates that the Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Key Provisions

The Terrorism Insurance Amendment (Cyclones and Related Flood Damage) Regulations 2021 (the Regulations) amend the Terrorism Insurance Regulations 2003 (the Terrorism Insurance Regulations) to assign the Australian Reinsurance Pool Corporation (ARPC) the new role of preparing to operate a reinsurance pool for cyclones and related flood damage. This amendment is in line with the Government's intention to establish a reinsurance scheme that aims to improve the availability and affordability of insurance by covering the risk of property damage caused by cyclones and related flooding. Specifically, Section 1 of the Regulations specifies the name of the Regulations, while Section 2 dictates that Schedule 1, which contains the amendments, commences on the day after the instrument is registered on the Federal Register of Legislation. Section 3 confirms that the Regulations are made under the Terrorism Insurance Act 2003, and Section 4 provides for the Schedule, detailing how specified instruments will be amended or repealed as outlined in the applicable items of the Schedule. The Regulations impose specific obligations and requirements on the ARPC. Under the amendments, the ARPC is tasked with preparing for the operation of a reinsurance pool for cyclones and related flood damage. This involves engaging in preliminary planning and undertaking preparatory work to ensure that the reinsurance scheme can commence operations, if agreed by Government, from 1 July 2022. The Regulations do not detail specific compliance measures or reporting requirements for the ARPC, but they do set the stage for the ARPC to assist the Government in the design and implementation of the reinsurance scheme. This is achieved by enabling the ARPC to engage in the necessary preparatory activities to facilitate the operational readiness of the scheme. There are no specific offences, penalties, or civil/criminal consequences outlined in the Regulations for breach. However, the Regulations are part of a legislative framework that may include provisions for penalties and enforcement in other related laws or regulations. The focus of the Regulations is on enabling the ARPC to perform its new function, and it is anticipated that further detailed legislative amendments or regulations will address compliance, enforcement, and penalties if the reinsurance scheme is implemented. As the Regulations are designed to facilitate preparatory work, their primary impact is on procedural readiness rather than on imposing direct penalties for non-compliance.