Home owners are crossing their fingers as more Australians are cutting insurance from their budgets due to the cost of living crisis.
The increasing frequency of extreme climate events, inflation, and Australians’ love of urbanization in places most likely to be affected by weather have created a “perfect storm” in insurance markets.
Andrew Hall, head of the Insurance Council of Australia, painted a grim picture during an address to the National Press Club on Thursday.
He said the “difficult choice” to drop insurance or be underinsured is creating a protection gap – the extent to which potential economic losses are not covered by private insurance.
“It’s the difference between what should be insured or what should be insured and what is not,” he said.
Many Australians have tried to maintain cover but Mr Hall said the risk was greatest in areas where “the risk of high natural risk exposure is driving the greatest increases in premiums.”
“More and more people are crossing their fingers and hoping that luck will be on their side,” Mr Hall said.
“As the security gap widens, there will be serious implications. The first is the additional vulnerability that households and families, especially middle- and low-income earners, will face if the worst happens.
“This means that when disasters and accidents occur, they disproportionately affect the lives of people, especially those from vulnerable socio-economic groups.”
As a result, he warned, taxpayers will have to bear greater additional risk for post-disaster cleanup and there will be greater pressure on government coffers.
Banks will also be exposed rapidly.
A recent report from the Institute of Actuaries suggested that almost one in eight Australian households are facing home insurance affordability stress.
Since the Black Summer bushfires in 2019, Australia has experienced 18, as Mr Hall described, “insurance disasters”.
“Last year alone, the insurance industry in Australia paid out 302,000 disaster-related claims, resulting in insured losses of more than $7.25 billion,” Mr Hall said.
The ICA boss said proper mitigation is vital and gave the example of an average 34 per cent drop in premiums in Roma, Queensland, after a flood embankment was built.
He also urged for further strengthening of the National Building Code so that houses can be made more sustainable for the environment where they are built.
Mr Hall welcomed the call from National Cabinet to stop building homes on flood plains.
“Too often, we have built our homes in places where we can touch, feel and absorb nature – in the bush, on river banks and on beaches,” he said.
“But in doing so, we have put ourselves in flood plains, in bushfire-prone areas, or in coastal areas in the direct path of cyclones.
“We have ignored nature’s red flags.”
He also urged state governments to abolish 10 percent stamp duty on insurance customers.
“If insurance policies for homes or cars did not exist, or were priced out of reach, the population would demand them from the government.
“To protect our future and productivity, Australian governments at state and federal level must look at reforming insurance taxes.
“There is a clear opportunity here to think about how to encourage states to reduce their insurance taxes to ensure that more people have the private cover that will provide protection.”
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