Chapter 3Rising cost and unavailability of insurance
3.1Submitters all over the country raised concerns about the rising cost of insurance premiums. This chapter will consider the role and importance of insurance in disaster recovery, and the impact of rising costs and the unavailability of insurance on communities, and particularly vulnerable cohorts, as well as local businesses and local councils in disaster effected areas.
Role of insurance in disaster recovery
3.2Insurance is a financial product that aims to protect individuals and businesses from financial and asset loss, damage or theft, along with providing peace of mind.[1]
3.3The Insurance Council of Australia (ICA) advised that insurance plays a fundamental role in protecting the financial stability of individuals, businesses and the wider economy from the risks of unexpected events.[2]
3.4The Law Council of Australia agreed, explaining that 'comprehensive insurance coverage for climate-related natural disasters can play a critical role in absorbing the costs of future climate damages and losses and in supporting economic recovery in the aftermath of these events'.[3]
3.5The Productivity Commission considers that insurance serves a dual purpose: firstly, that insurance payouts reduce the financial impacts of natural disaster damage and secondly, the price of insurance premiums sends a signal to property owners about the magnitude of the risks they face in a particular area.[4]
3.6Insurance products come in many forms, but the most common products in Australia are:
car insurance;
home insurance;
contents insurance;
health insurance;
life insurance; and
business insurance.[5]
3.7The Actuaries Institute advised that all of these insurance products are impacted by climate risk, explaining that:
Climate risk impacts many lines of insurance. Home buildings and strata insurance have received extensive coverage both in Australia and in other countries given recent experiences and is the focus of our responses to the specific Terms of Reference. However, climate risk also impacts other personal lines such as motor insurance (given the structural transformation of vehicle types and the different claims cost profile of those vehicles), commercial lines of insurance (such as business continuity or interruption insurance, liability classes and workers compensation), and health and life insurance.[6]
Rising cost and unavailability of insurance
3.8Many submitters told the committee that over the last few years, they have experienced rising insurance costs for their homes and businesses. For some, these costs have doubled or even tripled over a short period. Costs are so prohibitive that some people are either not taking out insurance at all, underinsuring or taking out insurance and foregoing other necessities including healthcare.
3.9The Department of Climate Change, Energy, the Environment and Water submitted that the 'impacts of climate change are contributing to the increasing severity and frequency of natural disasters around the world' and this is contributing to increasing insurance costs for Australians.[7]
3.10Due to the rising cost of premiums, the Insurance Council of Australia (ICA) highlighted the growing 'insurance protection gap'. That is the difference between the cost of recovering from an event and the insurance in place to cover that event which is impacting the insurance industry in Australia and around the world.[8] Analysis conducted by global reinsurer Swiss Re estimates the protection gap to be USD $12 billion in Australia.[9]
3.11CHOICE found that the benefits of insurance are 'increasingly out of reach of many people',[10] explaining that:
Climate change is causing premiums to rise, forcing many people to reduce their cover or opt out of insurance altogether. Even where people can afford insurance, inconsistent and confusing policy terms often mean that when they go to make a claim, they find they aren't covered. And rising costs of rebuilding mean that many people find they haven't been adequately insured.[11]
3.12The South West Queensland Regional Organisation of Councils told the committee that the 'spiralling costs of insurance premiums are acting as a barrier to progressing regional development goals'.[12]
3.13The Australian Small Business and Family Enterprise Ombudsman revealed that many businesses cannot secure appropriate insurance at an affordable price. They warned that some businesses are uninsured, or significantly underinsured, with excesses that would preclude any claim being made.
3.14In relation to household insurance Councillor Steve Krieg, Mayor of Lismore City Council, submitted that 'insurance is probably the biggest roadblock to the Northern Rivers recovery' following the 2022 floods. He advised that, two and a half years since the floods, there are still people waiting on insurance outcomes forced to reside in unliveable houses.[14]
3.15Councillor Shaun Radnedge, Mayor of Murweh Shire Council, gave similar evidence about the impact on families of the cost of insurance:
We are seeing families whose insurance premiums are higher than the house mortgage. We are seeing young people and families not being able to take out a housing loan because of the cost of insurance. Small businesses are facing extreme insurance costs and are not able to insure their buildings and stock. The cost of insurance is causing landlords to exit the rental market with little or no returns on investment after the fixed costs like insurance rates and repairs are deducted.[15]
3.16The Actuaries Institute revealed that, in 2023, more than 1 million Australian households experienced some form of insurance affordability stress. It found that rates of insurance affordability stress, non-insurance and underinsurance are particularly significant in disadvantaged communities, concentrated in northern Queensland, northern New South Wales and northern Western Australia, reflecting the higher cyclone and flood risks in these areas.[16]
3.17The Australian Prudential Regulation Agency (APRA) reported that household insurance premiums have seen double-digit percentage increases over the recent years, which has exacerbated insurance affordability and accessibility challenges. This has resulted in a widening protection gap, with some of these households deciding to underinsure or cancel their policies altogether given the costs.[17]
3.18The committee heard that the protection gap is wider for certain cohorts of the community. For example, the Australia Institute told the committee that increasing costs of insurance are not shared equally across the country, falling disproportionately on people on low incomes, and those living in northern Australia.[18]Further, the Actuaries Institute reported that older Australians, retirees, renters, those who have lower insurance literacy, people who live in socioeconomically disadvantaged areas and have lower savings balances are most impacted.[19]
Personal accounts
3.19While conducting public hearings around Australia for this inquiry, the committee heard directly from people struggling with the rising cost of insurance.
3.20Ms Jan Praetz, who has been a resident of Mullumbimby, NSW, for the last 50 years, told the committee:
I'm a senior citizen. I was flooded in February 2022 for the first time ever. I have recently settled with my insurance company but have been very concerned about the rising cost of my insurance. When the flood happened, I was insured by GIO at a cost of $2,421. That increased in 2023 to $3,020 and this year in 2024 it's gone up to $4,396. I'm really fearful as to what my insurance will cost me next year, whether this is going to be just a continual rising of my insurance policy. I'm a pensioner and I find it very difficult to come up with this money, but I'm really scared not to have my house insured.[20]
3.21Ms Kerry Pritchard, a representative of the Murwillumbah Community Centre was asked to pass on the following experience of a community member who had contacted the Centre:
When we purchased our home, we factored in the price of insurance, knowing that it was quite high, given flood risk.
We wanted to be responsible owners and have full coverage ... However, after the 2022 flood, in August that same year, our insurance price jumped in a way that was out of proportion and could never have been predicted, nor factored in. Upon purchase of our property and insurance our premium more than doubled from $6,104 to $13,354.
That was six months out from the flood.
The out-of-proportion increases in premium did not stop there. The very next year it jumped. This year our insurance premium has surpassed our mortgage and we are forced to be underinsured slightly in order to keep our house and our insurance. We pay a significant proportion of our income to these.
CGU is our insurer and when our policy came up for renewal post flood we were informed that the company had changed the way they deal with properties in extreme risk, which they had classified ours as. The floor of our house is known by the insurer to be built above the one in 100 flood line.
We are now paying just under $25,000 a year for full insurance of around $400,000, which is well underinsured, maximum coverage on a property that is not impacted at all until a major flood level is reached … it's caused extreme financial hardship.[21]
3.22Mrs Sandra Gilbert, an Advocate within the Tweed Residential Park Homeowners Association, shared the experience of people living in the residential parks in Tweed Heads:
Eight out of the 14 parks went under. At that stage, we had 90 per cent that were insured. Mostly they were insured with CIL.
The floods came along, and CIL were very good by paying out their insurance premiums, so we've got no complaint about that.
Then it was the phone call or the letter to say: 'Sorry, we don't want anything more to do with you. We cannot insure you full stop.' So that was when the problem set in. As soon as the residents ring up and tell them their postcode, 'It's no, no, no, no.'
Now we would have less than 10 per cent covered, and those 10 per cent represent the younger people that have come into the park that are working. We have RACQ insuring them, and their premiums have gone from $500 to $3,700 a year.[22]
3.23Ms Jan Harris, who lost her home in Tathra in the March 2018 Reedy Swamp Fire, expressed her views on her experiences with insurance:
I feel increasingly nervous about the rising cost of insurance, our premium has nearly doubled and I doubt we could afford to rebuild and replace the contents we have. The contents we have now are of a lesser standard than what we lost, we could not afford to rebuild to the required standard and have what we lost replaced. It is depressing knowing that what we own now is so much less likely to be destroyed in a fire as it's built to BAL 40 but that if premiums keep going up as retirees we may not be financially able to insure.[23]
3.24Another submitter, who asked the committee to withhold their name, detailed their family's difficulty in obtaining affordable home insurance, despite taking measures to mitigate bushfire risks:
Our home, built in 2011 in Pullenvale, Queensland, was designed to meet stringent bushfire resilience standards (BAL 40). We followed all required recommendations, including metal guttering and downpipes, and incurred extra costs to ensure the house was built safely. Despite this, we find ourselves unable to secure competitive insurance coverage.
My current insurer, Allianz, quoted a renewal premium of $34,250, a $20,000 increase from the previous year. Having made changes to our coverage and excess that has now reduced to $12,750 for a $2 million sum insured, with a $5,000 excess. However, other insurers refuse to even quote due to perceived bushfire risk, despite no major bushfires in the area for years.
It is deeply frustrating that after complying with building standards designed to reduce risk, insurance companies can simply ignore these facts and price us out of affordable coverage.
Furthermore, our land includes 24 acres of bushland protected under a Brisbane City Council preservation order, yet Suncorp classifies the property as a farm. This misclassification has led to a blanket refusal of insurance, which compounds the difficulty of securing alternative coverage. My broker informs me that automated systems and blanket rules are replacing thoughtful consideration of individual circumstances, leaving homeowners like us trapped with limited options.
Impact on vulnerable cohorts
3.25The rising costs of insurance premiums are disproportionately affecting the most vulnerable cohorts in the community including retirees and low socio‑economic households. In this regard, the National Insurance Brokers Association (NIBA) told the committee:
The burden of rising insurance premiums is not evenly distributed across communities. The paradox of insurance is that those who are most impacted by natural perils are least likely to be able to afford to protect themselves from the effects of such events. Rising unaffordability and unavailability of insurance have the potential to further exacerbate existing inequalities by trapping vulnerable populations in high-risk areas and exposing them to greater social harm.
3.26National Legal Aid informed the committee that, based on its casework, insurance premiums disproportionally affect lower socio-economic communities, who often live in the high-risk areas as they are more affordable, 'thereby amplifying inequality and creating significant vulnerability pockets'.
3.27The committee repeatedly heard evidence regarding the double disadvantage faced by low-income households who are forced to live in high-risk disaster areas while being hit with significantly higher insurance premiums. For such households, underinsurance or no insurance at all is the reality. In fact, evidence to the Australian Competition and Consumer Commission (ACCC) recently indicated that underinsurance in northern Western Australia is estimated to be around 60 per cent. At the same time, these households continue to face the real prospect of experiencing or re-experiencing natural disaster.
3.28Councillor Shaun Radnedge, Mayor of Murweh Shire Council, provided his Council's perspective on this matter:
Our concern within council is that our most vulnerable residents will be the most impacted. We are seeing retirees who have worked all their whole lives, paid tax, paid off their homes and raised a family having to abandon their insurance premiums and are fully exposed to being left destitute if tragedy strikes. We are seeing families whose insurance premiums are higher than the house mortgage. We are seeing young people and families not being able to take out a housing loan because of the cost of insurance. Small businesses are facing extreme insurance costs and are not able to insure their buildings and stock. The cost of insurance is causing landlords to exit the rental market with little or no returns on investment after the fixed costs like insurance rates and repairs are deducted.
3.29Good Shepherd highlighted their concerns about the lack of access to affordable, adequate insurance for their clients, who are predominantly women and their children, explaining:
We know from our program delivery experience that inadequate insurance disproportionately affects women and their children. For example, in our major No Interest Loan (NILs) program (comprising around 40,000 clients), 65% of clients are women. People use the NILs program following disasters, to replace essential household items not covered by insurance.
3.30Good Shepherd also relayed feedback from their practitioners that ‘insurance is typically one of the first things to go when the cost of other essentials is high, such as housing, energy and food’.
Impact on tenants
3.31The committee also heard about the impacts on tenants around the country.
3.32Good Shepherd confirmed that renters are disproportionately non-insured, submitting that:
Insurance coverage is particularly low among renters, who comprise the majority of Good Shepherd’s NILs clients (70% are social or private renters). A 2019 analysis of NILs clients found that only 6% of renters had contents insurance, versus the 39% of homeowners with home/contents insurance. In the broader community, one study found that only 23% of public renters and 26% of private renters have contents insurance, versus the 88% of mortgage-holders with home and contents insurance.
3.33Good Shepherd further explained that under tenancy laws, a tenancy ceases when a home is declared uninhabitable. However, often tenants do not have the means to rent a new property and are forced to leave the area, causing them to be displaced from their communities, work, schools and family support.
3.34Tenants Queensland, which established a flood recovery team following the February 2022 flood and storm event in Southeast Queensland, observed that:
… there are devastating consequences for tenants who are impacted by climate driven disasters and for, one reason or another, have not had insurance to recoup their losses, replace their belongings or secure alternative accommodation after disaster.[33]
3.35Four major concerns were brought to the committee's attention in relation to the experience of tenants. While drawn from evidence given by Tenants Queensland in relation to the experience of tenants in that state, many of the challenges faced by tenants described below are shared by tenants in other parts of the country.
3.36The first is that tenants are faced with increasing premiums for contents insurance, particularly for individuals living in regions deemed to be prone to climate driven disasters. Ms Abigail Pfidze from Tenants Queensland advised that many tenants have no choice but to continue living in higher risk areas due to low vacancy rates. However, due to increasing yearly premiums for contents insurance, the tenants most at risk need to forgo insurance or are underinsuring themselves.[34]
3.37The second concern is that increasing premiums for home insurance are often passed on to tenants by the homeowner. Ms Pfidze explained that tenants are often footing the bill for landlords' insurance increases that cannot be used for their benefit in the event of a disaster, while also having to forgo insurance for themselves. She advised that ultimately, while landlords and tenants in disaster prone areas are impacted by increasing premiums, the cost can be greater for tenants, who have no means of recouping these costs from elsewhere.[35]
3.38Thirdly, tenants in some regions are deemed ineligible for insurance. The committee was told of a tenant who recently reached out to Tenants Queensland after signing his lease agreement. He was seeking assistance to find an insurer that would provide him with contents insurance cover, after every insurer he contacted refused to provide insurance. The tenant only later discovered that the home he was renting was in a flood prone area and could not be insured.[36]
3.39Additionally, Ms Pfidze explained that in Queensland, lessors or agents are not required to disclose to prospective tenants that rental premises have been flood affected. This means that tenants often find out when it is too late that they are at risk of flooding or any other disaster, and that the property and contents within it are uninsurable.[37]
3.40Finally, Tenants Queensland advised that lessors in Queensland have the discretion of offer temporary accommodation to tenants when premises are damaged due to a disaster, but there is no requirement in tenancy law to offer this. This can lead to tenants living in unsafe conditions for extended periods of time, because they have nowhere to go after a disaster, or are forced to rely on crisis accommodation.[38]