Mozo’s Insurance Report 2022: Uninsured Australia and the rising costs of protection

Quick facts from our report:

• Rising insurance costs have been a struggle for Australians, with many set to reduce their coverage or cancel their policies if premiums increase again in the next 12 months.
• Landlords (67%), renters (61%), and drivers (57%) reported premium increases on their insurance policies in the past 12 months.
• Climate change hits big, with floods, storms, and bushfires driving claims across home and car insurance policies.
• Almost half (48%) of Australians want the Northern Australian reinsurance scheme extended across the country.

After two years of intense flooding, gale force winds, and raging bushfires, Mozo’s latest survey research has found almost half (49%) of Australians believe climate change is driving up their insurance premiums. Severe weather events have forced many to claim on their policies, with losses for homes and cars alike topping an estimated $4.8 billion.

As insurance providers face mounting pressure to provide payouts, many have begun hiking premiums on customers in risky areas. But such a move is likely to put vulnerable Australians on the verge of underinsurance, with many considering cutting back on their coverage or cancelling their policy outright if premiums rise again. As insurance customers flee rising premiums, this could make dozens of locations in Australia effectively uninsurable by 2030.

Mozo found almost two thirds (62%) of home insurance customers surveyed saw their premiums increase in the past 12 months. Of those surveyed, 17% said their premium had increased significantly. 

“Insurance is increasingly out of reach for many Australians, as premiums rise on the back of floods, fires and wild weather, with the situation set to worsen as climate change takes its toll across the country,” says Mozo’s money expert Tom Godfrey.

When asked about their level of cover, 43% of participants claimed they were underinsured. Of those:

• Just over a fifth (21%) said their insurance policy wouldn’t cover the full cost of rebuilding, repairing, or replacing their home.
• 22% said they had to reduce their level of cover to reduce their premium.

“As the premium hikes and severe weather events continue to erode the value of insurance for many Austrailans, many homeowners are increasingly financially vulnerable,” explains Godfrey.

“With cheaper housing often built in disaster prone areas such as on flood plains and in bushfire zones, it’s people who need the most financial protection who can least afford it.”

Almost a third (32%) of participants had to claim on their home insurance in the past year, with 37% claiming for flood damage, 37% for storm damage, 21% for theft, and 19% for bushfire damage.

While most (82%) repairs were made within six months, 13% said their repairs were made within a year, 3% waited two years, and another 3% were still waiting for repairs more than two years after the problem occurred.

Mozo also found that if premiums were to increase again in the next 12 months, 30% of home insurance customers would have to increase their excess to reduce cost if possible, 20% would have to reduce their cover, and 9% said they would be forced to cancel their policy outright.

Without relief in sight, many homeowners will likely seek cheap home insurance as an alternative to comprehensive (but more expensive) policies. Those looking to buy a new property will also have to carefully consider the insurance risks before signing on the dotted line.

When it comes to landlord insurance, Mozo found just over two thirds (67%) of those surveyed saw their premiums increase in the past 12 months, with almost a quarter (24%) reporting their premiums had increased by a lot.

While the slight majority (62%) of surveyed landlords didn’t have to file a claim in the last year, a worrying amount still did. Most participants (49%) claimed for storm damage, while 46% claimed for flood damage, 45% for bushfire damage, 38% for storm surges, and 25% for mould.

Mozo also found that if premiums were to increase again this year, almost a third (31%) of landlords would be forced to increase their excess to reduce cost, 15% would have to reduce their cover, and worryingly almost a fifth (19%) said they would be forced to opt out altogether. This not only leaves landlords financially vulnerable, but potentially implicates their tenants as well, who would be forced to find a new place to live in a time of disaster.

Just over half of landlords (51%) believe they are underinsured, and of those 30% said they won’t be covered if they need to claim for damages or loss of rental income. Over a fifth (21%) had to reduce cover to keep premiums down, chipping away at the value of their insurance policy. Without adequate coverage, it may not matter how much premiums cost when the worst happens.

“As evacuation orders and flood rescues become all too frequent for Australians in NSW and South East Queensland, insurance [will become] a vital but increasingly unaffordable necessity,” Godfrey warns.

Renters tend to get left behind in the home insurance conversation, even though a significant number of Australian households aren’t owner-occupied, particularly in areas most susceptible to repeated severe weather events such as flooding.

Mozo’s survey found just under two thirds (61%) of people with renters insurance saw their premiums increase in the past 12 months. Of the 36% who had to file a claim:

• Half (52%) did so due to accidental loss.
• 45% for fire. 
• 42% for theft.
• 38% for accidental damage to fixtures and fittings.
• 31% for bushfire damage.
• 30% for storm damage.
• 20% for flood damage.
• 8% for mould.

Mozo also found that if premiums were to increase again this year, almost a third (32%) of renters surveyed would have to increase their excess to reduce cost, 27% would have to reduce their cover, and 12% reported they would be forced to cancel their policy.

Car insurance was another pain point for consumers, with Mozo’s research finding:

• 57% of people surveyed reported their premium had increased in the past 12 months.
• 29% of survey participants were concerned about their level of car insurance, and of those 14% believe they are underinsured but can’t afford comprehensive car insurance.

According to data from the Insurance Council of Australia (ICA), the average cost of comprehensive car insurance premiums dropped dramatically from Q4 of 2019 to Q3 of 2020, equating to a 9.8% lower year-on-year (YOY) cost for policies. The figure correlates to a 13.6% drop in the number of comprehensive car insurance claims, during a time when much of the population were in COVID lockdowns around the country and using their vehicles less overall. 

According to the ICA’s data, the cost of a policy in 2022 has shot up by a 21% year-on-year increase from 2021 in the cost of premiums as car usage habits rebound, post-restrictions. This has resulted in the highest average premiums since the ICA began recording such data in 2004. The frequency of claims has also bounced back from lockdown lows by 5.6% since 2021. 

Mozo research shows 22% of survey respondents made a car insurance claim in the past year, of which:

• Over half (54%) claimed for a minor accident
• 27% claimed for a major accident

Other claims involved hail damage (21%), theft (18%), bushfires (16%), and flooding (13%).

In an attempt to reduce the cost of car insurance, 21% of those surveyed plan to increase their excess to lower their premium in the next 12 months, 19% plan to reduce the kilometres they drive, 16% plan to decrease the sum they are insured for, and 7% plan to cancel their insurance altogether.

In September last year, Mozo analysed quote data from 35 car insurance providers across 9,503 customer scenarios for the car insurance category of the Mozo Experts Choice Awards. 

They found that depending on where you live, the average car insurance quote could be a lot higher. The data revealed motorists in Victoria, NSW, and the Northern Territory pay significantly higher average premiums than people in Western Australia and Tasmania. 

“With Mozo’s analysis finding the cost of cover often driven by where you live, how far you drive, your gender, age and car colour, taking the time to compare car insurance policies can be a simple and effective way to drive home a more competitive deal,” Godfrey says.

The latest research from the Insurance Council of Australia found the 2022 floods across Southeast Queensland and Northern New South Wales are now Australia’s third costliest weather disaster in history. 

The bill from insured losses topped $4.8 billion, with almost 225,000 insurance claims being lodged. The cost exceeds Jarden's prediction in March that insurance claims could exceed $3 billion, which may contribute to average premium increases of 10% this financial year. 

NRMA’s research also shows 77% of people surveyed are concerned about the severity and frequency of natural disasters. The finding comes in the wake of the flood crisis in February and March this year that saw the insurance provider receive 30,000 claims for damage to homes, property and vehicles.

“Australia is on a tipping point when it comes to insurance, with the flood of claims in the wake of severe weather likely to keep flowing,” says Godfrey.

There is no doubt that climate change is having a significant impact on Australia. As our climate continues to warm, we may experience more frequent weather events like bushfires, floods, hail storms and cyclones. 

According to Mozo’s research, half (49%) of Australians surveyed believe that climate change-driven severe weather events, and the increasing number of related claims, are responsible for driving up the cost of their insurance premiums.

It seems clear that the increased frequency of extreme weather events will put significant stress on the insurance providers and their customers are likely to feel the effects in the form of significantly higher premiums or in extreme cases, the inability to access insurance.

The finding comes following Corelogic’s report earlier this year which found up to $25 billion worth of coastal property is in jeopardy from erosion, storm surges, and climate change. 

Although the Insurance Council of Australia has stated that “at present no region in Australia is uninsurable”, they also believe, “it is possible some regions may become difficult to insure in the future unless governments invest in appropriate physical mitigation and adaptation strategies”. 

But one step you can take when considering a property is to research the area, so you’re aware of any potential risks you face when seeking an insurance policy. 

Consulting group McKinsey put forward a similar view, claiming climate change effects are systemic. They said, “climate risk is likely to stress local economies and—more grimly—cause market failures that affect both consumers and insurers.”

“It seems clear that the increased frequency of extreme weather events will put significant stress on the insurance providers,” explains Godfrey, “and their customers are likely to feel the effects in the form of significantly higher premiums or in extreme cases, the inability to access insurance.”

When asked what needs to be done to help ensure they have the necessary cover, almost half (48%) of Australians said they’d like to see the Cyclone Reinsurance Pool extended across the country to reduce premiums and access affordable cover.

It is believed that state and territory government support will also be important in helping residents recover after severe weather events. Earlier this year the NSW State Government announced the Back Home scheme which provides up to $20,000 to residents whose homes have been declared damaged or destroyed, yet are ineligible for insurance or natural disaster relief. 

The Back Home program covers 37 local government areas including:

• Ballina
• Byron
• Clarence Valley
• Hawkesbury
• Kyogle
• Lismore
• Richmond Valley
• Tweed
• Cumberland
• Mid Coast
• Muswellbrook
• Nambucca
• Newcastle
• Port Stephens
• Randwick
• Warren.

Most recently, the federal and NSW governments announced an $80 million package to assist with clean up of flood debris, grants to assist farmers and a range of other measures for flooded and uninhabitable properties.

“As the industry struggles to insure many areas across the country and consumers struggle with rising premiums across a range of insurance products, it’s clear more government support will be required,” says Godfrey.

With growing concerns amid homeowners in areas prone to severe weather events, the prospect of not being able to insure their properties has left them questioning what they can do to safeguard their assets. 

“From getting an independent building inspection, reviewing flood maps and talking to an insurer before you purchase, there are similar things you can do to reduce your risk of being hit with high premiums or not being able to get insurance,” Godfrey says.

For new home buyers, researching the area you are looking to purchase your property is important. Look for an area’s history of natural disasters, like flooding and bushfires.

For existing property owners, understanding the risk you might face from floods and storm surges can give you an idea of the sorts of preventative measures you can take to reduce the impact of wild weather on your home. By preparing your property with the appropriate materials, furnishings, and fittings, these sorts of steps may save you money later down the line. It’s all about being proactive, not reactive, as the old adage goes.

If you are able to insure your home, but for less than it’s actually worth (underinsurance), lowering your home’s overall risk can, in some cases, help lower your premium. This might mean you could pass the savings on to your own emergency repair fund, should the insurance payout not be enough to cover the damage done.

Faced with the increased frequency and severity of climate change-driven natural disasters, it’s important to know where you stand when it comes to insurance across a range of personal finance needs. 

For instance, here are a few traps it could pay to avoid:

• Failing to research the flood map and bushfire zones in the area you’re looking to purchase a property.
• Failing to insure your house for its replacement value.
• Failing to itemise your more valuable possessions on your insurance policy.
• Failing to stay on top of household or vehicle maintenance. 
• Failing to properly read the terms and conditions of your coverage in the PDS.

Mozo has also come up with a number of tips to help you navigate your insurance needs.

• Compare insurance policies across a range of insurance providers.

• Research your property before purchasing to ensure you’re not buying in a high risk area.
• If you own a property in a high risk area, do what you can to mitigate your risk.

Notes on research: A nationally representative survey of 2,293 Australians aged 24 years and above conducted by Researchify in April and May 2022. Where totals are above 100% respondents selected multiple options.