Australia — Insurers have defended a recent round of price increases for home owners, saying it follows years of unusually high frequency of large natural disasters, culminating with this year’s devastating bushfires.
Many have seen their premiums jump in the double-digit percentage range, but executives have strongly denied that people living in bushfire or flood-prone regions are being specifically targeted.
Rather, the pricing reflects a greater frequency of risk in eastern Australia.
“The personal insurance market is extremely competitive and pricing is very rational. However, it’s about pricing for risk and the increases in claims have led to premium increases across all insurers,” said Suncorp insurance group executive Bernadette Inglis.
Ms Inglis said Australia had had significant weather events in recent years, from fires in Victoria to severe floods and storms across NSW and into Queensland.
Natural disaster payouts since 2007 of nearly $4.3 billion are more than 2½ times the 20-year average for payouts linked to disasters.
“Going into the calculations of premiums is the propensity of a property to be closer or further from a particular peril – all of those factors are taken in so customers are not specifically targeted,” Ms Inglis told BusinessDay.
Even after the devastating bushfires, few have moved to overhaul their insurance before the fire season, Ms Inglis warned.
Even with rains across Sydney during recent weeks, the Rural Fire Service has warned of a potentially disastrous fire season with a build-up of dry waste following a prolonged drought.
A study recently commissioned by Suncorp – which operates brands such as AAMI and GIO – found a little more than 10 per cent of home owners living in areas considered prone to bushfires in NSW had reviewed their level of insurance coverage.
While overall payouts linked to the Victorian bushfires are estimated to exceed $1 billion, Ms Inglis said the industry found a significant number of property owners affected were underinsured – that is, the policy did not cover the full cost of rebuilding their home or replacing all the contents.
In some cases, payouts covered only half of what was needed to rebuild, while nearly a quarter of all those affected by the fires had no insurance.
Insurers have long argued that the fire services levy – a state-based tax added to home insurance policies – is a key factor in underinsurance.
The bulk of funding for fire authorities comes from this levy as opposed to other emergency services where funding is broad based.
“That [levy] can add a significant amount to premiums which, for some home customers, can add up to 50 per cent of the cost of policy,” Ms Inglis said.
“If we want to address underinsurance in a significant way, then addressing the fire services levy will be part of that,” she said.
Underinsurance is likely to become a bigger issue, with fire authorities in Victoria now recommending home owners evacuate their property on extreme-risk fire days, removing the ”stay and defend” message from official warnings.