Inflation has decreased to its lowest level in two years, yet the cost of insurance continues to rise. The Australian Bureau of Statistics (ABS) attributes the surge in insurance premiums to the escalating costs of claims, augmented reinsurance expenses, and the impact of natural disasters.
Key Insights
1. Recent statistics indicate a more than 16% rise in insurance rates over the year ending in the December 2023 quarter.
2. Industry experts and insurance companies point to increased reinsurance costs, natural disasters, and expensive claims as primary factors driving up premiums.
3. The Insurance Council of Australia reports that insurers have faced minimal profits for three consecutive years.
4. Many policyholders have observed a rise in their insurance premiums over the past year.
According to the latest Consumer Price Index figures, the past year witnessed the most significant annual increase in insurance premiums since 2001.
Understanding the Increase in Insurance Bills
The ABS reports a 16.2% increase in insurance prices in the year to the December 2023 quarter, a significant jump from the 6.3% increase observed in the previous year.
Finder, a financial comparison website, noted a 19.8% increase in car insurance rates since early 2021, with the average comprehensive car insurance premium now around $130 monthly.
Finder's analysis also shows the average home insurance premium at approximately $143 monthly for a $500,000 building with $100,000 worth of contents.
Reasons Behind Rising Insurance Prices
The ABS cites higher reinsurance, the cost of natural disasters and claims expenses as contributing to the uptick in premiums for home, contents, and vehicle insurance.
A spokesperson from the Insurance Council of Australia highlighted the role of extreme weather events in driving up insurance costs, alongside inflation, which has escalated the cost of building and vehicle repairs, and the rising cost of capital for insurers.
Steve Mickenbecker, a group executive at Canstar, referred to the combination of extreme weather and economic factors as a "perfect storm," resulting in more claims and higher settlement costs.
Strategies to Manage Rising Insurance Costs
Being loyal to one insurer may not always be financially wise. It's beneficial to compare quotes, as insurers often offer better deals to new customers.
Uta Mihm from CHOICE suggests shopping around for insurance - especially if you have been with your current provider for over two years - and considering an increase in your excess to lower premiums.
Discounts may be available for purchasing policies online, holding multiple policies with the same insurer, or enhancing home security.
Impact on Insurers
Despite rising premiums, the Insurance Council of Australia reports that insurers have faced "very low profits" for three consecutive years, with home insurance products collectively incurring a loss of about $220 million in the most recent period. This financial strain is attributed to higher claims and operational costs exacerbated by a series of extreme weather events since the Black Summer bushfires.
The ICA and insurers remain vocal advocates for measures that reduce risk and stabilise premiums, including improved land use planning and building codes, investment in mitigation infrastructure, and the elimination of state insurance taxes.
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