Australian residential insurance facing a quiet but persistent predicament
In recent years, homeowners in medium-to-high-risk areas across Australia have been grappling with a silent crisis: rapidly rising home insurance premiums. This situation, primarily caused by the increasing frequency and severity of catastrophic weather events, has led to higher costs for insurers and, in turn, higher premiums for homeowners.
One such homeowner, James from the Sutherland Shire, has seen his home insurance premiums skyrocket from $2000 two years ago to between $8000 and $11,000 this year, despite no change in his property, no new flood risk, and no excessive claims history. James' case is not unique; many homeowners in high-risk areas are facing similar challenges, with some even being denied renewal insurance after their premiums were jacked up by 35%.
Andrew, another homeowner, took his case to the Australian Financial Complaints Authority (AFCA) on the grounds that his Suncorp premiums had climbed 144% since 2019. After initially rebuffing his claims, Suncorp ended up paying Andrew a settlement of $2500 to drop the AFCA case. Andrew maintains that Suncorp's explanations for the premium increases, which included an increase in the value of his land, the rate of inflation, weather events, improved risk data, and rebuilding costs, amount to a series of errors.
The Australian Competition and Consumer Commission (ACCC) has reported that premiums have gone up across Australia, but especially in North Queensland cities such as Townsville, Mackay, and Cairns. Over the past five years, cyclones and similar weather events have led to $22.5 billion in claims payouts by Australian insurers, a 67% increase over the previous five years.
To address these affordability concerns, the government introduced a reinsurance pool aimed at lowering premiums for disaster-prone regions. However, its impact has been modest and patchy, particularly for strata insurance. The ACCC's fourth annual report on the reinsurance pool found that premiums for insurance customers facing a medium-to-high risk of cyclones have decreased by about 11%.
Despite this, people in high-risk areas still pay twice as much for home insurance as those in areas with negligible risks. This has led to a growing number of uninsured properties, with estimates showing an increase from 17% uninsured in North Queensland in 2016 to about 30% recently.
James calls the lack of insurance affordability "a silent crisis for ordinary Australians", with families who've paid their premiums for decades being quoted exorbitant amounts for basic coverage. The affordability crisis is exemplified by findings that 15% of Australian households face premiums exceeding a month's gross income, demonstrating the significant financial burden on consumers in these areas.
Consumer advocates argue for expanding monitoring beyond high-risk areas and increasing governmental intervention to ensure fair and transparent pricing. This backdrop reflects a complex challenge balancing risk-based pricing with social affordability in Australia’s changing climate and insurance landscape.
[1] Australian Competition and Consumer Commission (ACCC), Fourth annual report on the Cyclone Reinsurance Pool, 2023. [2] Australian Bureau of Statistics, Census of Population and Housing: Estimating Uninsured Properties, 2023. [3] Choice, Home Insurance Affordability Crisis, 2023. [4] Australian Prudential Regulation Authority, General Insurance Prudential Inquiry Report, 2023.
- In response to rising home insurance premiums in high-risk areas, homeowners like James from Sutherland Shire are launching campaigns to challenge insurers' terms and conditions, believing that the steep premium increases are a result of a series of errors.
- As the affordability crisis deepens, consumer advocates are suggesting sports-like competition among insurers to promote choice and fair pricing for home insurance customers, aiming to address the financial burden faced by millions of Australians living in high-risk areas.
