Revealed: True impact of illegal tobacco on insurance premiums

Insurance companies are hitting small businesses with 50 per cent premium hikes simply for being located near tobacco shops as Australia’s illegal cigarette trade spirals out of control.

Melbourne landlord Marco Bogaers says he evicted a long-term tenant running a legal tobacconist because he could not afford the $200,000 insurance premium increase. Picture: Mohammad Alfares

Small businesses located near ­tobacconists are facing insurance premium hikes of more than 50 per cent due to the increased risk of firebombings, ram raids and other gang-related violence as the $5bn black market becomes ever more out of control.

Tobacco industry data shows Australia has recorded the fastest-growing black market for tobacco among all OECD nations, and economists say governments have given criminals a “rolled gold” opportunity to exploit the skyrocketing tobacco excise by setting up their own ­illegal trade.

According to industry estimates, the illicit share of Australia’s tobacco market has more than doubled in just three years, from 29.6 per cent in 2023 to 61 per cent in 2025, giving the country the highest growth rate across the OECD.

By comparison, the next fastest-growing markets, New Zealand and Chile, recorded rises of 17 per cent and 10.5 per cent respectively over the same period.

Jake Grainger, 25, of Edgeworth, has pleaded guilty to firebombing the No Bull Tattoo shop and a VW Golf nearby at Long Jetty on June 26, 2025. Picture: supplied

The impact of the black market is now being widely felt by police forces, state governments and legal retailers either selling legal cigarettes and being threatened by criminal gangs for it, or else simply operating near a tobacconist.

Master Grocers Australia chief executive Martin Stirling said his members were increasingly reporting exorbitant hikes in their insurance premiums due to what insurers saw as an increase in risk due to the proximity of a tobacconist to the business.

“It’s a devastating increase, particularly for small family-owned businesses that are already struggling with the costs of business,” Mr Stirling said.

“The last thing they need is ­insurance premium increases through no fault of their own.

“They’ve done nothing wrong other than (their business) happens to be co-­located with a tobacconist, and that tobacconist might be selling entirely lawful products or might be selling illicit products, but it doesn’t seem to matter.”

Mr Stirling said retailers were in some instances being declined coverage and forced to find a new insurer, who inevitably charged a far higher premium that what they had previously paid.

“I’ve spoken to a retailer … the IGA in Callala Bay in NSW,” he said. “When they came up to renew their insurance, initially they were declined coverage, and that was on the basis that there is a tobacco store in that little shopping complex, and the risk profile is just too great to provide insurance coverage.

“And so what they did, of course, is they went to other insurers, and eventually did manage to obtain coverage. But I’m told that additional increase they’ve had to face after having those discussions with the insurer is a 54 per cent increase on their costs, which is astronomical for a small business that doesn’t have the support of a of a big corporate distribution network like Coles and Woolworths.”

A tobacconist has been the target of an attempted fire bombing on Forest Road, Bexley. Picture: Bill Hearne

Landlords of complexes are even evicting tobacconists due to the increased premiums being charged by the insurers.

Melbourne landlord Marco Bogaers said he was left with no choice but to evict a long-term tenant after his building’s insurance premium surged by $200,000 – despite the tenant running a legal tobacconist.

Mr Bogaers, who owns a retail property in a mixed-use apartment complex, said he was told by the building’s owners corporation last year that its insurer would no longer cover the property without a massive price rise due to the “heightened risk” posed by a ­tobacco retailer.

“We were notified by the owners corporation that the premium was going to go up considerably – by as much as $200,000 – as a result of the fact that there was a tobacconist in the tenancy,” Mr Bogaers told The Australian from his office in Brunswick, in the city’s inner north.

“There was nothing illegal about his business. He was a legitimate tobacconist. But no insurer wanted to take the risk.”

The building’s brokers advised the owners corporation that there were no local insurers willing to take on the policy, and that it would need to go “all the way to London” to find underwriters prepared to offer cover – at an astronomical cost.

To avoid passing the cost onto the small retailer, Mr Bogaers agreed to release him from the lease without penalty. “The owners corporation could levy that increase directly on me, and under the lease I could have passed it onto the tenant – but it would have meant $200,000 a year in outgoings. So we came to a mutual decision that he would leave,” he said.

The warning came after Victoria Police sent letters to building owners, alerting them that insurance companies were reassessing their policies for sites with tobacconists.

The police letter, seen by The Australian, said arson attacks had led to “general discussions between Police and in­surance companies”, and the “sale of illegal products in a retail premises may adversely impact on the status of an owner’s policy of building and liability insurance should a claim be subsequently made.”

Mr Bogaers said that when he put the property back on the market, about one in three applicants claimed to be opening a “convenience store”, which was code, he said, for selling illegal tobacco under the counter.

“It’s the government’s fault. The excise is so high it’s created an environment where people take shortcuts,” he said. “It’s gone beyond a health issue, it’s a law and order issue now.”