Actuaries Institute is calling for better measures to understand insurance affordability as many Australians face affordability pressure.
The latest research paper by the Actuaries Institute revealed that households in up to 12% of Australian postcodes might find it challenging to meet their annual home insurance premiums, which represents around 7% the country's population.
The paper said Australia has a sophisticated approach to pricing risk for natural disasters, reflected in premiums that can vary from less than $1,000 a year to over $10,000. However, the country has no precise or widely accepted measure that determines the affordability of insurance, and data is lacking to gauge the depth of the problem.
Actuaries Institute president Hoa Bui said the paper aims to help policymakers better understand affordability issues. He added that without a measure of affordability and better publicly available data, it will remain difficult to target relief to those who need it.
“All stakeholders have a role to play in improving affordability, especially in northern Australia, where this is most keenly felt. There is a compelling public policy case for examining cross-subsidising some premiums for those experiencing stress,” Bui said.
The report also found that a policyholder's ability to pay for insurance is not always linked to their risk. For example, some homes in the highest risk areas tend to be in lower socio-economic groups.
As housing affordability and cost of living pressures rise, some property owners might be forced to let their policies lapse or purchase less insurance than is needed.
“This gives rise to what is considered a ‘protection gap’, property owners without sufficient insurance to recover well from loss events,” Bui said.
The paper pointed to increased mitigation as a key feature of addressing affordability pressures, adding that the government must temporarily intervene to help manage affordability in at least the near term.