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Affordability

by with No Comment blog

Why is insurance affordability so important? 

Insurance plays an essential role in the economy, and affordable insurance is central to resilient communities.

Our members recognise that access to appropriate levels of insurance cover is a crucial to supporting our communities and national economic recovery and growth.

Committed to addressing affordability

Insurers share a commitment to addressing insurance affordability and availability over the short and long-term and the ICA works closely with all levels of government and consumers to help communities understand risk and work towards practical and meaningful solutions.

Why have some premiums been rising?

Insurance prices reflect the level of risk within a given market. Different types of insurance will therefore be priced differently. 

Generally speaking, premiums tend to be lower and stable where there is competition, freely available reinsurance and known risk factors. As insurance works by pooling risk, insurers cannot have a concentrated exposure to any one source of risk and the level of premiums is one way they can manage their exposure.

In recent years, our changing natural environment has impacted the cost of insurance in parts of Australia. Catastrophic natural events have damaged or destroyed property worth tens of billions of dollars. This has been most recently visible in the Australian bushfires of 2019-20 and floods of 2021 and the increasing frequency of these events poses long-term questions for the insurance industry and the Australian community.

Reviews into insurance affordability

Two prominent reviews have taken place into insurance affordability in the last two years:

  • ACCC Northern Australia Insurance Inquiry  
  • Role of the Private Insurance Market –Independent Strategic Review: Commercial Insurance

ACCC Northern Australia Insurance Inquiry

Concentrated impact in northern Australia

Catastrophic natural events impact different parts of Australia in different ways. In northern Australia, the increasing scale and frequency of claims due to cyclones and flood has raised costs and rendered the insurance market unprofitable over a long period of time.  This focus was the subject of recent reports, including:

  • ACCC Northern Australia Insurance Inquiry(released in December 2020)

Findings of ACCC Northern Australia Insurance Inquiry 

Over three years, the ACCC conducted a wide-ranging inquiry into the supply of residential building, contents and strata insurance in northern Australia.

The final report, released in December 2020, concluded that “the higher risk of natural disasters in northern Australia is driving higher premiums” and suggested that “reforms to land use planning and building standards may offer the best hope for achieving sustainable and equitable improvements to insurance affordability in northern Australia in the future.”

Role of the Private Insurance Market – Independent Strategic Review: Commercial Insurance

An independent report was commissioned by the Insurance Council of Australia and led by industry expert John Trowbridge in collaboration with economist Michael Blythe. A draft was released in May 2021 and the final report, including 13 recommendations, was released on 20 September 2021.

The final report concluded that in the context of a hardening insurance market there is no one-size-fits-all solution to issues of affordability and availability for small business sectors, and that solutions require collaboration and goodwill between the insurance sector, the SME sector, and governments.

The Review’s recommendations broadly fall into three categories: improved engagement between insurers and the SME sector; better understanding of insurance by SME policyholders; and advocacy to government and transparency. The ICA supports all recommendations of the Review.

Submissions to the ICA

Access submissions to the ICA for the ‘Role of the Private Insurance Market –Independent Strategic Review: Commercial Insurance’