Priced Out – House Insurance Affordability

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Original media release from CPSA (Combined Pensioners and Superannuants Association) 30/08/2023.

Home insurance is an essential thing to have, but what if it becomes so expensive many have to go without? One in eight, a new report says.

HOME insurance has just about joined scotch fillet in the (un)affordability stakes. But while there are alternatives for scotch fillet (minced meat, for example), there aren’t for home insurance.

The problem is not just that insurance premiums have gone up dramatically over the financial year just past, incomes have not kept pace, not for people who are working and not for people who are retired.

The Age Pension increased by 7.7 per cent in 2022-2023, but the median increase in home insurance premiums was 28 per cent! ‘Median’ means ‘on average’ but leaving out the exceptions. In this case an exception would be insurance for houses in flood zones for example. If you leave those in, the average is 48 per cent.

The Actuaries Institute keeps tabs on things like home insurance premiums. It says that there are now 12 per cent of households experiencing insurance “affordability stress”. That’s up from 10 per cent for the previous year, which shows that home insurance premium increases are not just a thing of the past financial year.

It means one-and-a-quarter million Australian households face home insurance affordability stress compared with one million a year ago.

Households suffering extreme affordability pressures are concentrated in Northern Queensland, the Northern Rivers region of New South Wales and Northern Western Australia.

In these areas, half of the population pay more than a month of gross household income for their annual home insurance premium. The affordability pressures faced in these regions are driven by cyclone risk (Queensland and Western Australia) and floods (New South Wales).

What may also be a factor in these areas is that insurance companies put up premiums by more than is warranted by risk simply to recoup losses they have suffered in recent years in these regions.

Metropolitan areas typically have lower natural hazard risks and higher incomes. This means that the capital cities have lower affordability pressures on average.

However, affordability pressure is still present within parts of the capital cities of Greater Sydney, Greater Melbourne and Greater Perth, particularly in outer-urban areas.

The Actuaries Institute points out that the dramatic increase is due to a number of factors. One is significant increases in the cost of rebuilding a home due, in turn, to  supply-chain shortages, increased demand after natural disasters (when a lot of tradies put their prices up) and inflation generally.

Then there is the fact already mentioned that insurance companies want more after a disaster, because the risk they are insuring you against seems to have increased and because they want to recoup losses.

Households have some flexibility in managing insurance affordability pressure. They  can reduce the sum they insure their home for or increase their excess.

But for some it has to mean going without home insurance, an extremely risky thing to do, particularly if you live in an area where bushfires or floods can occur. The Actuaries Institute says that as many as one in eight households may abandon home insurance completely.

That may sound sensationalist, but actuaries are generally not given to exaggeration. However, the Actuaries Institute does concede no one knows which properties are and which aren’t insured.

It’s a very educated guess, in other words.

While owners of Torrens-titled dwellings may have some flexibility, there is no such flexibility available to owner-occupiers of apartments and to people living in retirement villages. Their home insurance premiums form part of strata or management fees.