Senators grill industry over premium rises
Home insurance rate rises may have peaked, a Senate inquiry heard today, as the industry explained the challenges of pricing exposures in the face of increased extreme weather events.
“I am seeing some signs – in terms of what our prospective view is on premium rate rises against the backdrop of the most recent reinsurance renewals – [of] some stabilisation in inflation,” RACQ Insurance chief executive of insurance Trent Sayers told the inquiry into climate risk and its impact on premiums.
“I’m hopeful that we’re not going to see the similar inflationary pressure on insurance pricing as we move forward in FY25 as we’ve had in the most recent couple of years.”
RACQ Insurance and Suncorp fronted the Senate select committee in Brisbane today after community groups and councils aired their frustrations with insurers at yesterday’s hearing in Ballina, NSW.
Today, the committee raised concerns over the way premiums are set, and asked why increases exceeded the inflation rate and if climate risk has a huge impact on insurance prices.
Asked about pricing transparency, Suncorp EGM motor prevention and protection portfolio Tim Buckett said: “Unfortunately, it is a complex task to try to price expected loss … for the next 12 months, particularly when two-thirds of the loss is driven by natural hazard events.
“Our endless pursuit is how we make that more transparent to our customers, particularly in [hard] cycles that we are going through.”
The committee was told the hard market, particularly after the 2022 record floods, has made pricing tougher.
“There are many elements that go into the price of a risk,” Mr Buckett said. “It’s not just floods … [it’s] bushfires, cyclones, earthquakes, storm surge. We model each one of those perils and estimate expected loss at a risk address.
“[And] even if the frequency of events doesn’t change … your cost could change due to things like building cost.”
He says construction costs have risen more than 30%, citing Australian Bureau of Statistics data.
“You can build a levee … but your expected loss … may go up because of that construction cost.”
Mr Sayers says there is no doubt the frequency and severity of natural disasters is leading to more insurance claims.
“These surges put considerable pressure on insurance premiums and insurance companies, forcing us to reassess our risk models and, inevitably, our premiums,” he said. “As the risk of natural disaster grows, insurers adjust their pricing to maintain solvency and sustainability. For some policyholders, unfortunately, this does mean higher costs for coverage.
“Homeowners in high-risk flood-prone areas, for example, have seen premium increases, making insurance availability a real challenge. However, insurance pricing is complex, with many factors being considered in determining the appropriate premium for the risk.”
The committee asked Suncorp to explain its general insurance business’ “massive profit” of $510 million in the December half.
“They are total profits on a very big capital base,” Mr Buckett said, adding the business is “exposed to risk … north of $7 billion … possible losses that we could incur. We do believe it’s very, very important that Australia has a strong and sustainable insurance industry … that we are here to rebuild towns, to rebuild houses when disaster strikes. So it is important that we earn a reasonable return on that capital.”
The Senate committee is to present its final report by November 19.