Actuaries Institute warns insurance stress growing worse on back of record price jump

Home insurance premiums are soaring, with the rising affordability stress likely to see fewer Australians covered for the cost of looming disasters, a report says.

Home insurance premiums are soaring, with the rising affordability stress likely to see fewer Australians covered for the cost of looming disasters as the industry reprices to cover costly disasters over recent years, a report says.

A report published by the Actuaries Institute on Monday finds home premiums recorded their biggest jump in 20 years after insurers raised prices 28 per cent last year, with warnings households may abandon cover if premium price rises keep their pace.

The report, prepared on behalf of the Actuaries Institute, which represents risk pricing professionals, finds the number of insurance-stressed households has grown as more Australians face higher premiums.

The report finds 12 per cent of households were spending more than one month’s gross annual income on home insurance, up from 10 per cent in March last year.

Finity Consulting principal Sharanjit Paddam, who co-authored the Actuaries Institute’s report, warns the worsening of insurance stress was also likely being reflected in the number of people not buying insurance due to its soaring costs.

“We are seeing the impacts of climate change, in not reducing emissions,” he said. “It is flowing into worse weather and that is flowing into insurance costs.”

Mr Paddam said a key driver of insurance costs was the inflation breakout on materials costs due to a string of natural catastrophes that lashed Australia’s major population centres in recent years.

Insurance Council of Australia data shows the storms and floods that have smashed Australia since January 2020 have slugged insurers for more than $12.3bn in claims.

Mr Paddam said the signs out of the insurance sector were the price increases would continue over the coming year.

ADF personnel clean up flood damage in Milton in March last year. Picture: Getty Images

At its recent results reveal, Suncorp said it was aiming for a 10 per cent lift in gross written premium driven largely by repricing across its existing customers rather than organic growth.

Suncorp reported its home insurance book fell 0.8 per cent in the second half of the financial year, the first time in two years the insurer had had a slide in number.

Mr Paddam said price pressures were most acute at one end of the market, with the recent losses leading insurers to lift premiums steeply on their most risky customers.

Mr Paddam said governments needed to act to head off worsening price pressures, with mitigation projects required to protect vulnerable communities.

But he said governments also must stop allowing developments in flood zones, such as Sydney’s Hawkesbury-Nepean flood plain.

“The issue is not in the old parts of cities, it’s the fringes of ­cities that are growing and we are continuing to allow people to build,” Mr Paddam said.

Swiss Re head of portfolio management APAC Evelyn Chow, who co-authored the ­report, said that risk reduction was the only way to address ­affordability stress.

“If the government was to give consideration to an insurance pool, any future model would need to consider the fact that flood risk is highly localised in Australia among a relatively small number of households with significant exposure,” Ms Chow said.

The federal government has commissioned a parliamentary inquiry into the insurers’ responses to the 2022 floods, which will examine the way the insurance sector handled the response and clean-up.

Former Australian Prudential Regulation Authority member and insurance industry veteran John Trowbridge said it was increasingly clear that many people lacked flood coverage who needed it.

He said the review would see insurers and other interested parties “talk all about mitigation and reducing the risk” but it was unlikely to see any change in the appetite from the insurance sector to offer cover for high flood risk properties.

“It’s a pretty thankless task for the insurer to try cover these properties,” he said.