High cost of living sees home insurance premiums rise by nearly 50%

Collage of lightning price bolts of rising home insurance premiums over houses with solar panels

Having an emergency financial backup plan for your home and valuables just got more expensive, at a time when the cost of living already bites hard. 

A new report released by the Actuaries Institute today shows that home insurance premiums rose 46% on average across Australia in the last year – driven primarily by building costs inflation and a high natural peril risk worsened by climate change, particularly flooding. 

Now, nearly one in eight Australians face affordability stress when it comes to insuring their home and belongings. Confronted with a choice between affording basic goods or paying for a policy, many homeowners may reduce or get rid of their coverage altogether, which could worsen the uninsured crisis. 

“This is the largest increase in home insurance premiums I have seen over the last two decades,” says one of the report’s authors, actuary Sharanjit Paddam.

“If we don’t take policy action now, we can expect to have more people abandoning home insurance. Without insurance, households will struggle to recover from disasters and governments, taxpayers, charities and many informal means of support will be left to assist. 

“This usually results in households receiving some support but will not allow them the full economic recovery they would receive if insured.”

Indeed, this rise in home insurance premiums comes hand in hand with other household budget stresses, such as the climbing costs of home loan repayments. Mozo spokesperson Rachel Wastell stresses that the impact of high insurance premiums could not have worse timing for many homeowners and landlords. 

“Australians with a $750,000 home loan are already scrambling to find more than $1,500 more* every month to cover their repayments,” Wastell explains. 

“This, coupled with the added stress of rising insurance premiums and in some cases a 15 per cent rise in the cost of everyday groceries like dairy products, is placing significant pressure on already stretched household budgets.”

The report makes some reform recommendations but admits the insurance affordability problem has no easy answers. The insurance industry as a whole will need structural reform, as well as government measures like tax-related incentives to get properties insured. Otherwise, it all comes down to eliminating risk – for insurance providers and customers. 

“Risk reduction is the only way ultimately to address affordability stress by lowering the underlying risk and therefore costs in a sustainable way, especially when we factor in climate change,” says the report’s lead author, head of portfolio management APAC for Swiss Re, Evelyn Chow.

“An optimal mix of measures could be supported by using better data, technology and climate risk frameworks.”

In the meantime, customers keen on cheap home and contents insurance will need to compare policies, hunt out good value where they can, and take steps to reduce their personal likelihood of disaster. 

*Based on an owner-occupier making principal & interest repayments, with an LVR<80% over a 25 year term and the Mozo database average variable rate of 6.60%, as of 11th August 2023.

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