Insurance price rises not slowing: how to reduce your costs

It’s a vital expense for most Australians and is rising at four times the pace of inflation, so what can people do to reduce the pain?

Anthony KeanePersonal finance writer

@keanemoney

3 min read

March 4, 2024 - 1:56PM

The Australian Business Network

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Australia’s cost-of-living crisis appears to be easing on several fronts but one key household expense continues to climb sharply and painfully: insurance.

While food, fuel and mortgage rises have moderated, the price of protecting our homes, contents, cars and other assets is rising faster this financial year than it did in 2022-23.

Australian Bureau of Statistics figures show overall insurance premiums increased 16 per cent in calendar 2023, accelerating from their 14 per cent rise in 2022-23 and four times higher than 2023’s annual inflation rate of 4.1 per cent.

There were even heftier rises in several insurance categories.

A report by the Actuaries Institute found median home insurance premiums surged 28 per cent in 2023, while recent research by comparison website Mozo found car and travel insurance surged 24 per cent last year.

Mozo spokeswoman Kylie Moss said the cost-of-living pinch was prompting more people to reduce their cover, “and this means that they are potentially underinsured for a major event should one occur”.

“In many instances people are making a choice to forgo insurance altogether as they simply are unable to afford the premiums,” she said.

Mozo’s Kylie Moss says many people are potentially underinsured. Picture: Supplied

“When large-scale disasters become a regular occurrence, there’s added pressure on reinsurance costs, which is basically insurance for insurance companies, and so they pass some of these costs onto customers.”

An Insurance Council of Australia spokesperson said premium prices were rising because of:

• Escalating costs of natural disasters.

• Growing asset values, making them more costly to replace.

• Inflation pushing up building and repair costs.

• The increasing cost of business for insurers.

“Since the Black Summer Bushfires of 2019-20 insurers, have paid out $16 billion in claims from 13 declared insurance catastrophes or significant events, events that are still having an impact on the price of premiums for every Australian insurance customer,” the spokesperson said.

“The best action householders can take is to shop around and find a premium that suits their needs and budget.”

AMP chief economist Shane Oliver said there had been a global increase in reinsurance costs.

“It seems jarring because you hear that insurance company profits have gone up, but they have to put some of that profit into rebuilding their reserves,” Dr Oliver said.

Insurance company IAG’s profit rose from $167m to $248m for the half-year to December 31, Suncorp’s cash profit jumped 14 per cent to $660m, Medibank’s underlying net profit rose 16.3 per cent to $263 million, and NIB’s half-year profit surged 22 per cent to $119m.

Dr Oliver said the impact of natural disasters affected premiums for other types of insurance unrelated to those disasters.

“It gets spread around,” he said. “The disasters increase claims and the insurers run down their reserves because they are making payouts. There may not have been more car crashes but a general insurer is still affected by payments for the damage caused by floods and things.”

Comparison website iSelect’s spokeswoman, Sophie Ryan, said the 16.2 per cent increase in overall insurance premiums last year was the biggest annual spike since 2001.

“With many household budgets under significant pressure, it’s understandable that some Aussies will be questioning whether they can afford to maintain some of their insurance policies,” she said.

Sophie Ryan from iSelect says peace of mind is important. Picture: Supplied

“However, when it comes to other insurance such as health, home or car, peace of mind could be a big reason to hold a policy.”

Ms Ryan said people could cut costs by reviewing their policies regularly, shop around and compare options because customers were often not rewarded for their loyalty, and choose a higher excess in return for a lower premium.

Mozo’s Ms Moss said most insurance companies had a range of options “from comprehensive cover through to basic”.

“With car insurance, maybe you could save by opting for an agreed value not replacement. With contents insurance, lowering cover limits for non-essential items might also reduce your costs.”

Ms Moss said people should always shop around and compare quotes before renewing, consider bundling multiple policies to access discounts, improve home or car security features, and match their usage to their policy.

“Pay upfront,” she said. “While most insurers will offer an option to pay by the month, this usually comes at a higher price than if you were to pay your annual bill in a lump sum.”