Car Insurance Market Australia

Car Insurance Market Australia – Australian insurance prices are rising faster than inflation, driven by frequent extreme weather events such as floods and bushfires. Photo: Diego Fedele/Getty Images View the image in full screen

Australian insurance prices are rising faster than inflation, driven by frequent extreme weather events such as floods and bushfires. Photo: Diego Fedel/Getty Images

Car Insurance Market Australia

Insurance growth is in the double digits, and while costs are rising, some insurance companies are increasing their margins

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Even as some of Australia’s biggest insurers expand profits, insurance premiums are rising faster than inflation, putting pressure on homeowners, drivers and private health customers.

The sector, often overlooked as a driver of inflation and cost of living, was a prominent contributor to the latest inflation data, which represents annual price increases not seen in more than two decades.

Insurers are advising customers of double-digit premium increases for most products, including home and auto insurance, representing a new supercycle of hikes.

The industry defended the decision, arguing that extreme weather and the high costs of labor, building replacements, auto parts and repairs necessitated increases above inflation.

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The effects of the climate crisis weigh heavily on the prices charged by reinsurers, who bear a portion of the risk of natural disasters, which is ultimately passed on to policyholders.

Professor Paula Jarzabkowski of the University of Queensland said the increased frequency of extreme weather events was driving up prices.

“Usually you get a spike in premiums for a year or two after a disaster and then it all comes back,” said Jarzabkowski, who specializes in closing gaps in insurance coverage. “What we are seeing now is a fundamental change in how the insurance market works.

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“You’re going to find that some people just can’t afford the insurance and so they’re going to get out of the market. We’ve built in places that probably shouldn’t have been built and after climate change, they’re definitely not as strong.”

While weather disasters are driving up insurance premiums, brokers also note that the big increase puts insurers in a strong profit position for years to come, similar to the scenario following the 2010-11 Queensland floods.

The country’s two largest non-life insurers, Suncorp and QBE, revealed increased insurance profit margins in their latest financial results, with the former crediting strong premium growth, customer base growth and price increases as targets.

“We remain acutely aware of the affordability challenges facing customers and continue to focus on increasing the efficiency of our operations,” Suncorp said.

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QBE noted that the higher costs of producing products and the greater frequency and severity of weather events were reflected in the pricing policy.

Stock market performance for insurance stocks has been mixed, as legacy claims weigh on earnings for some of the country’s biggest insurers such as IAG, while Suncorp and QBE are trading at decade highs.

Insurers have not faced the same political scrutiny as supermarkets and banks, which have benefited even during periods of inflation while their customers face rising prices and payments.

The Australian Council of Trade Unions said major insurers were “relentless” in the cost of living crisis.

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“When you see these income increases, you have to ask why workers are being priced out of essential coverage,” said ACTU Assistant Secretary Joseph Mitchell.

The future profitability of the insurance industry depends on whether they face sustained high claims or enjoy a period of relative calm. There is also the question of whether customers will continue to accept double-digit price increases on their insurance policies.

Insurance prices have risen by 16.2% in 12 months, as measured by inflation, the highest annual rate since 2001.

That compares with an annual inflation rate of 4.1%, which policymakers are trying to push back to the 2% to 3% range.

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An Insurance Council of Australia spokeswoman said since the devastating 2019-2020 bushfires, insurers had paid out $16 billion in claims from 13 declared insurance catastrophes or significant events, which were still affecting premiums.

“Wherever you live in Australia, whether you are directly affected by extreme weather or not, the rising costs of natural disasters, rising premium prices as the rising costs of our assets make them more expensive to replace, inflation increasing the cost of building and repairing vehicles and the rising cost of capital for insurance companies, the spokesman said.

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According to the Australian Bureau of Statistics, insurance costs contribute more than 5% to the inflation calculation after housing and food, but before education and clothing costs.

Kate Booth from the University of Tasmania said there was a need to be more aware of how rising premiums were putting pressure on the cost of living.

“Companies that produce food, their insurance risk profiles are changing, so they’re potentially paying more for their insurance, and then that affects consumers,” Booth said, referring to the impact of climate change on premiums.

“It’s not just home insurance. It’s the most obvious thing we can see and understand, but potentially all types of insurance increase in value — health insurance, pet insurance, funeral insurance, life insurance.”

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Health costs are also tracking inflation, according to ABS data, while the price many consumers receive from private health insurance is falling, according to a report by the Australian Medical Association.

Industry group Private Healthcare Australia has dismissed claims of falling prices, saying health funds paid more on average for hospital care per policyholder than in previous years.

Australia’s largest private health insurer, Medibank, has increased profit margins throughout the pandemic, from 7.2% in 2019-2020 to 9.1% last financial year, and its shares are trading near record levels.

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“This cost discipline is good for customers and their premiums,” says Miloš Milisavljevic, customer manager at Medibank.

“We’re really focused on making sure our customers can get great value with us – and we know that value starts with their premiums, so we’re working hard to keep them as low as possible, even as costs in the health sector continue to rise .” Supermarket chain Aldi has joined Coles and Woolworths in a product offering that includes motor protection and underwritten by RACQ Insurance, Aldi said its policies “will consistently deliver great value and experience at competitive prices”.

“We are excited to expand into new categories with Aldi Insurance, bringing even more savings to Australia,” said Rodney Balech, Group CEO of Aldi Australia.

“We know Australians are calling for a trusted insurance provider that not only offers reliable and accessible services, but doesn’t break the bank. With the launch of Aldi Insurance, we’re partnering with the tried and true experience of Honey’s Guarantee to give customers confidence in our products, our competitive prices and quality products.

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“We’ve taken the complexity out of comprehensive auto, home and contents insurance and homeowner’s insurance to offer a simple product of exceptional value,” he added.

Richard Joffe, founder and CEO of Honey Insurance, said the partnership with Aldi was a “natural fit” given their shared desire to provide a more reliable and simple insurance product to Australian customers. “Honey is proud to be an exclusive partner of Aldi Insurance and we are excited to join forces with Aldi to help Australians protect their homes and cars and at all costs give Australian families the great value they deserve,” Joffe said. Roy Morgan says 2.6 million people have switched car insurers in the past 12 months, while a further 2.1 million have taken out policies for the first time.

New data from Roy Morgan shows that the last 12 months have been a turbulent time for the car insurance industry – with a significant increase in the number of people looking to switch providers.

According to data compiled by a consumer research firm, around 2.6 million car insurance policies were switched to another provider in the 12 months to October 2023, amid rising cost-of-living pressures.

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“These figures show that the number of risk insurance increased last year, which coincided with the highest level of inflation in more than 30 years and the fastest rise in interest rates this century… This seems to make people monitor their operating costs more closely,” said Roy Morgan CEO Michelle Levine in a statement.

The data – taken from interviews with more than 60,000 Australians a year – was found