The cost of general insurance for household assets such as property and cars will continue to rise, giving households no relief after similar increases last year, an expert has warned.
KPMG insurance partner Scott Guse said he anticipated premium prices across general insurance personal lines would rise by about 10 per cent in 2023, after three years of consecutive increases.
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“On average we probably saw price increases in the realms of 10 per cent in 2022 and I wouldn’t be surprised to see similar increases in 2023,” he said.
Premiums of personal lines of general insurance have risen as the COVID-19 pandemic ended, and peaked last year as life returned to normal and Guse said people’s “risk profiles” changed.
He said the increases were also the result of severe weather, inflation, and the cost of re-insurance — insurance for insurers — also increasing.
“Insurance companies are very good at risk rating properties for the potential claims that may arise,” he said.
“Where a property is more affected by a potential claim, their premiums will go higher than 10 per cent, where they’re less affected, they’ll go up by less than 10 per cent.”
Blanchetown property owner Debra Woodards is in exactly that position.
Her property in South Australia’s Riverland has been submerged under floodwaters since the end of last year, when the River Murray experienced high flows.
Just before Christmas 2022 the annual price of her home and contents insurance, which included flood cover, went up from $1800 to almost $43,500.
“I just didn’t know what to do. Didn’t know if we were going to be able to make a claim,” Woodards said.
“(It’s) completely unaffordable, that’s a person’s wage.”
The floods are the worst natural disaster in South Australia’s recent history, with thousands of properties inundated, forcing many residents to leave their towns.
Woodards said she and other Blanchetown families couldn’t afford to cover their properties for future flood disasters.
“The average person’s not going to be able to afford them … We’re just going to take the gamble and not be able to afford flood insurance, so we won’t do it.”
Australia’s financial services regulator APRA said in its quarterly general insurance performance report for September 2022, the industry had received $43.3 billion in net earned premiums, an increase of 10.3 per cent over the same period in 2021.
“Premium increases were more prominent in the householders, domestic motor, fire and industrial special risks, professional indemnity and reinsurance classes of business,” the report stated.
Guse said governments could help moderate the cost of insurance by improving the preparedness of towns and communities against catastrophic weather events.
“The biggest thing that’s driving the cost up in home insurance is a lack of resilience in the building codes and conducts,” he said.
“You see cyclones damage homes that should have been built to certain standards.
“There’s been a number of studies that have shown if you invest $10 million in resilience you can actually get fivefold back in terms of insurance savings.”
Business insurance to moderate
Meanwhile, for the business sector, the cost of premiums is expected to moderate in 2023, except for property insurance.
John Donnelly from international commercial insurance broker, Marsh, said the peak of prices for commercial insurance was 2020, and data shows prices were generally not looking like they’d rise further.
The brokerage reported commercial property insurance saw a 4 per cent increase in the September to December quarter as well as the quarter before that.
Causality insurance, which included public liability insurance, also saw a 10 per cent increase in the last two quarters of 2022, while financial and professional lines saw no increase at all.
Donnelly said while cyber insurance had gone up 28 per cent at the end of 2022, it would also begin to moderate.
But like home and contents insurance, commercial property premiums were unlikely to get cheaper, he said.
“Cyber insurance is going up, but not going up near the extent it was in 2022 … when we were seeing triple digital increases,” Donnelly said.
“The property they’re (businesses) are insuring is going up in terms of value. The cost to replace a building more in 2023 than in 2020 because of inflation.”
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