Insurance premiums still rising by the double-digits with companies claiming policies are being subsidised
The latest annual inflation data shows insurance is still rising by double-digits. While Australians might feel like their premiums are getting more expensive, the companies which provide the cover claim policies are being subsidised from investment returns. Angelique Lu looks at the reasons behind why insurance is so high.
Category
📺
TVTranscript
00:00Insurance premiums are one of the biggest drivers of inflation.
00:06This chart shows the annual change in the cost of coverage, with policies increasing
00:11by 14% in the 12 months to June.
00:14Premiums are rising faster than inflation or the consumer price index, which increased
00:193.8% in the same period.
00:22So what happened at this point?
00:24We've had a combination of both inflation, the cost of building has risen around 27%,
00:31we've had 20 declared insurance catastrophes.
00:34Climate change, the cost of labour and materials, higher claim costs, and even the types of
00:39cars we drive are all working together to push up the cost of premiums.
00:44Why is insurance so expensive?
00:48The ABS data doesn't tell us exactly what's happening with each specific type of insurance,
00:53but we can look elsewhere to find out what's happening with car, home and health insurance.
00:57A report from the Actuaries Institute found the price of home insurance rose 28% in the
01:03year to March 2023, but for homes in flood-prone areas it was as high as 50%.
01:11Premiums have also been rising for car insurance.
01:14Research by Finder suggests they increased more than 10% in 2023, and are up nearly 20%
01:20since 2021.
01:22In better news, health insurance hasn't risen as dramatically.
01:26It's heavily regulated by the government, and annual price hikes need to be signed off
01:30by the health minister.
01:32Insurers had asked for premiums to increase by up to 6% from April, but were only approved
01:37for an average of 3.03%.
01:41But some private health insurers have raised premiums on some policies by more than quadruple
01:46the approved average, according to Choice.
01:49Any discussion about insurance is definitely going to raise up one topic, climate change.
01:55Payouts for weather-related claims have become more frequent over the last decade, pushing
01:59up premiums overall.
02:01The 2022 floods in South East Queensland and the Northern Rivers in New South Wales turned
02:06out to be the most expensive Australian natural catastrophe on record, leading to insured
02:11losses of $6 billion.
02:14Let's have a look again at the insurance inflation chart.
02:17The 2022 floods took place between February and early May, and we can see that insurance
02:22prices took off around September of that year.
02:25Flood is our most expensive peril that is insured in Australia.
02:29It adds the most amount to a premium.
02:32Even the Reserve Bank is worried about the impact of climate change on premiums.
02:35They can pass on the cost to their customers in the form of higher premiums, or they may
02:40simply withdraw coverage from high-risk regions.
02:43Repairing costs are increasing, and that's because it costs more to replace things these
02:47days.
02:48This chart shows they've risen steeply over the past three years.
02:52The cost to repair cars is also increasing, and that's partly because of the vehicles
02:56we're choosing to drive.
02:58Cars are becoming more complex pieces of technology, while at the same time accident rates haven't
03:03changed, but the cost of repairing those cars has gone up.
03:07But is there something else going on?
03:09How much are profits influencing your insurance premiums?
03:13For insurance company IAG, it made a net profit after tax of $407 million in the half-year
03:19ending December 2023, but this was down 13% from six months earlier.
03:26For Suncorp, in the second half of the year, it made a net profit after tax of $582 million,
03:33a 5.43% increase.
03:36For insurer QBE, it made a profit of $1.3 billion after tax in the full calendar year
03:42ending in December 2023, more than double compared with 2022, driven in part by higher
03:49income from premiums.
03:51But insurers say they're losing money from premiums.
03:53They're largely being subsidised by other forms of insurance and investment pools.
03:59We know that insurance premiums are really expensive right now, so what are your options?
04:04My recommendation always is shop around, make sure every year that you've got the
04:09best, most competitive premium available to you for the right sort of cover.
04:13There are other things you can do.
04:15Some insurers offer you a discount if you pay up front, and you can also play with your
04:19excess.
04:20For car insurance, you can pay a lower rate if you agree to drive fewer kilometres.
04:24These are all things you should consider next time that renewal notice comes in.