A recent report by CommBank iQ surveyed about seven million Australians and put the cost of insurance into stark focus. This year, according to the Cost of Living Insights Report, the amount of money Australians spend on coverages has risen by 12%, more than any other item.
Another key finding: The average person now spends $225 per month on their insurance, more than for any other essential item except food.
Insurance Business is approaching industry stakeholders to find out their reaction and the report’s implications.
Scott Wilford (pictured above) is executive director of Oracle Group Insurance Brokers.
“The report is concerning,” said Melbourne-based Wilford. “The rise in insurance costs will put huge stress on the family household.”
Some of his customers are reacting to this strain, he said, by defaulting on payments.
“We are seeing more defaults in monthly payments and premium funding across commercial and domestic clients,” he said.
One worry, he said, is insurance “isn’t tangible and can easily be discarded.”
That could lead, he suggested, to more customers dropping their covers.
“Customers will be looking at alternative options, reducing cover and removing insurance all together,” he said.
However, he urged customers – and by implication brokers – to remember the importance of property as an asset.
“The home is one of the biggest assets they will own, it houses and gives shelter to the family,” said Wilford. “Customers need to carefully think about this when reviewing their insurances.”
He also warned against resorting to cheaper insurance products, particularly in offerings from online and direct insurers.
“Under insurance is a huge issue across the Australian community and with building materials and labour costs increasing on average 15% over the last 16 months this has double impact on standard premium increases combined with sum insured increases,” said Wilford.
He said brokers and their customers need to make sure that coverages, wording and sums insured “are like for like.”
“It is very easy for customers to look at the bottom line and not the important factors that will impact them if a claim did arise,” he said.
As a brokerage, Wilford said his firm does try and help customers under financial strain.
“We remarket our customers policies each year with our panel of insurers to ensure the policy remains fit for purpose, competitive from a premium perspective and that the coverage is adequate for the new renewal period,” he said.
Customer circumstances, he said, need to be considered when coverage options are considered. A higher excess can be used to reduce a premium and the indexation applied by insurers to buildings can also be re-examined, said Wilford.
“The other option is to spread the premium costs over 12 months to help with cash flow,” he said.
“We are – thankfully - not seeing the majority of our clients in financial distress and we hope that continues,” said Sydney-based Bates.
However, he said his firm is noticing increased “cost consciousness”, but mainly from domestic clients.
Gronert also said, so far, his firm is not seeing “any widespread impact” on customers.
“We aren’t seeing a massive change in policy cancellations, however there are early signs of stress with a marginal increase in payment dishonours,” he said.
Gronert’s firm has noticed an impact on discretionary rather than essential items.
“There may be evidence of a change in consumer behaviour though, as there are some signs that fewer policies are coming through for discretionary purchases such as boats, motorcycles, jet skis and the like,” he said.
Wade Tubman, head of innovation and analytics at CommBank IQ and one of the authors of the report, warned that Australians’ financial stress is likely to get worse.
“We know what persistent inflation, the prospect of more interest rate rises, and the lag effect of previous hikes will weigh on future spending,” he said. “As a result, consumers will be navigating even more pressure.”
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