Home insurance costs are becoming a growing concern for Australians, with many households now facing the dual challenges of rising premiums and increasing affordability stress.
Recent research suggests that homeowners can potentially reduce their insurance expenses by switching providers, but the broader issue of affordability remains significant.
According to new data from Canstar, Australian homeowners could save an average of $819 per year by switching their home insurance provider. However, potential savings vary depending on the state.
Residents of Queensland and the Northern Territory have the highest potential savings, exceeding $1,000. In contrast, homeowners in Western Australia could save around $700, while those in New South Wales, Victoria, and South Australia could see savings ranging between $500 and $650.
Sally Tindall of Canstar emphasised the importance of considering the cost and necessary features when comparing home and contents insurance.
“It’s really important to keep a keen eye on price, but also make sure that you get the features that you need,” she said, as reported by 9News.
The rising cost of insurance is also contributing to inflationary pressures, according to KPMG chief economist Dr Brendan Rynne. Over the past year, home insurance premiums have increased by an average of 13%, or $286.
“In some regards, we’re all being touched by high insurance costs, which is quite pervasive and significant across the country,” Rynne said, as reported by 9News.
While switching providers may offer a way to manage these rising costs, the overall affordability of home insurance is increasingly under strain.
A report from the Actuaries Institute indicated that 1.6 million Australian households are now experiencing insurance affordability stress, a 30% increase from the previous year.
The report found that Australian households are spending an average of 9.6 weeks of their gross income on home insurance, significantly above the national average. The percentage of households in affordability stress – those paying premiums that exceed one month’s gross income – has increased to 15% by March 2024, up from 12% the previous year.
The report, developed by Finity actuaries, attributed this increase to a 9% rise in median insurance premiums, with properties in high-risk areas, particularly those prone to floods and cyclones, facing premium hikes exceeding 30%.
Sharanjit Paddam, the lead author of the report, noted that while most households can still afford insurance, the number of those struggling to do so is growing. He also warned that the situation is likely to worsen as natural disasters become more frequent due to climate change.
The report highlighted that Southeast Queensland, an area experiencing significant population growth, has the highest number of households facing severe affordability challenges.
Meanwhile, regions such as south west Queensland, the Northern Rivers in New South Wales, regional Western Australia, and the Northern Territory have the highest proportions of households under extreme affordability stress, with many paying more than a month’s income on insurance due to high risks from floods and cyclones.
The insurance industry faces both challenges and opportunities as climate change impacts the economy. While rising home insurance costs pose significant risks, the shift towards decarbonisation could create new opportunities for insurers, with emerging assets requiring coverage, according to Paddam.
The Insurance Council of Australia (ICA) also highlighted the escalating financial impact of extreme weather on the Australian economy. Losses from declared insurance catastrophes have tripled over the past three decades, with insured losses rising from 0.2% of GDP between 1995 and 2000 to 0.7% of GDP over the past five years.
Over the past 30 years, Australian insurers have paid an average of $2.1 billion annually due to extreme weather events. However, this figure has more than doubled to $4.5 billion annually in the last five years, largely driven by increased flood costs.
