Why is insurance affordability so important?
At present there is no area of Australia that is uninsurable, although there are some locations and industries where there are clearly affordability and availability constraints.
Factors contributing to premium increases
- Insurance prices reflect the level of risk within a given market. Different types of insurance will therefore be priced differently.
- Insurance globally is currently in a ‘hard’ market, which means capital is scarce, reinsurance is more difficult to obtain, and risk appetites are low, all of which can impact the cost of premiums locally.
- As the risk of extreme weather worsens, insurance can become increasingly costly for those in flood, bushfire-prone or cyclone-prone locations.
- Insurers are also seeing increased inflationary pressures coming from building supplies constraints and skills shortages.
- Premiums tend to be lower and stable where there is competition, freely available reinsurance and known risk factors. As insurance works by pooling risk, insurers cannot have a concentrated exposure to any one source of risk and the level of premiums is one way they can manage their exposure.
What action is the Insurance Council taking?
The affordability and availability of insurance is a critical issue for Australia's economy and while there's no one silver bullet, a key lever to improve availability and affordability is reducing or mitigating the risk that is present. In the case of risk from worsening extreme weather this means improved mitigation measures to better protect Australia and Australians.
Addressing affordability in the face of worsening extreme weather
In early 2022, the Insurance Council of Australia launched the report Building a More Resilient Australia which called for a range of measures to better protect households and communities from the impacts of extreme weather and put downward pressure on premiums. These measures include:
- A doubling of Federal funding to $200 million a year in household retrofits and community protection projects, matched by the states and territories.
- Better land use planning so no more homes are built in harms’ way.
- Updating the national building code to include building resilience as a standard.
- Removing state taxes and charges on insurance, which numerous inquiries have found to discourage adequate cover by driving up the cost of premiums.
While some progress has been made, particularly on the federal funding front, these recommended measures continue to be a cornerstone of the ICA’s ongoing advocacy.