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‘Perfect storm’: Soaring insurance premiums, claim delays under microscope
By Rachel Clun
Skyrocketing insurance premiums and lengthy delays in processing claims have forced the federal government to broaden its inquiry into the sector over fears cash-strapped households could drop their coverage altogether.
Insurance complaints have surged by as much as 76 per cent over the past year as premiums have jumped more than 20 per cent for car, house or contents insurance.
Insurance prices jumped 14.2 per cent in the year to June, up from 8.8 per cent in the year to May.Credit: Nick Moir
Assistant Treasurer Stephen Jones is worried the increase in premiums, combined with a rise in complaints, will result in people opting out of insurance.
“We’ve got a huge amount of pressures building up in what is a grudge purchase for many people, but an essential thing they’ve got to have, so I’m concerned about where it goes,” he said.
“There’s a perfect storm of things brewing here.”
Last month, Jones announced the government was launching an inquiry into insurers’ handling of the 2022 floods across eastern Australia.
That inquiry, to be set up in the coming days, will now have a broader scope to investigate everything from obstacles to resolving claim disputes to the impact of land zoning, planning decisions and disaster mitigation work on the affordability and availability of insurance.
Jones said he wanted pragmatic solutions, including what could be done to mitigate risk or reduce premiums.
“Disasters have an economic or social and emotional consequence and ... cost,” Jones said.
“If it’s not borne by the individuals that are insured, that cost is passed on somewhere else in the system. So to pretend that we’re not going to have to pay for this one way or another is foolish.”
Insurance prices jumped 14.2 per cent in the year to June, up from 8.8 per cent in the year to May. Apart from the introduction of the GST in 2000, it is the largest jump in insurance costs on record.
Anecdotally, customers are being asked to pay more than 20 per cent for some types of insurance. This includes people not affected by recent natural disasters.
At the same time, complaints are spiralling.
General insurance complaints to the Australian Financial Complaints Authority about issues including claim amounts and denials rose 50 per cent to nearly 28,000 in the past financial year, according to its latest report.
Delays in insurance claim handling topped the list of grievances, jumping 76 per cent.
The authority’s chief ombudsman, David Locke, said he had been worried about the increasing volume of complaints and was glad the government was investigating.
“We have had concerns for over a year now about the number of complaints that are coming to AFCA over general insurance claims, including those about delays, and we have raised these concerns with insurers,” he said.
“We have seen the frustration experienced by policyholders, especially those impacted by floods.”
Locke said the inquiry was an opportunity for everyone to get a better understanding of the problems and to find some solutions.
“We recognise there are a range of challenges, but we also believe insurers can do more to improve claims handling and their own internal dispute resolution processes,” he said.
“Our hope is that the result will be fewer general insurance complaints coming through to us over the next year, with insurers able to resolve issues directly and efficiently with their customers.”
A spokesperson for the Insurance Council of Australia, which represents the general insurance industry, said it was aware of both price pressures and claim delays.
The growing cost of extreme weather events, inflationary pressures in building repairs and increases of up to 30 per cent for reinsurance were all crunching insurers, it said in a statement.
“These are all impacting the price of premiums even before the impact of climate change on insurer costs is fully felt. Home insurance is under significant pressure – for every $1 collected in home premiums in 2022, insurers’ costs were $1.04,” the council said.
Pressure on insurers’ systems from the floods had been compounded by a shortage of expert assessors and widespread building and labour shortages.
“Given the scale and significance of the 2022 floods, the industry will be looking closely at the issues that have been reported as an opportunity to continuously improve outcomes for customers and the community,” the council said.
“Any review that supports the ability of insurers to improve how they carry out their crucial function and assist communities to get back on their feet following a disaster is welcome.”
Given the breadth of the inquiry, Jones said he would encourage the House of Representatives economics committee led by Labor MP and economist Daniel Mulino to consider a series of reports looking at specific aspects of the problem. A final report is due by the end of 2024.
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