Over the years, the insurance industry has been focused on making insurance accessible and affordable. However, premium costs remain steep, leaving many Australians unprotected from various risks.
Michael Sherris, a professor in the School of Risk and Actuarial Studies at the University of New South Wales (UNSW) and the chief investigator and director of industry engagement at ARC Centre of Excellence in Population Ageing Research (CEPAR), has delved into the factors driving up insurance premiums and what policyholders can do to remain covered.
Prof. Sherris said the main insurance policies for individuals include home and contents, car (comprehensive or third party), life, and health insurance. Meanwhile, businesses usually take out insurance for liability, business interruption (BI), and property and assets – all exposed to extreme weather events, climate change impacts, inflation, and BIs.
“The important feature of inflation and climate-related risks is that these are largely systematic risks. This means they are so pervasive; they cannot be mitigated by risk management or diversifying providers' insurance and investment portfolios. In short, they are likely to hit many insurance policies and industries at once,” Prof. Sherris said.
Focusing on climate change, Prof. Sherris said some insurance types will take a hit from climate change more than others, just as some individuals and businesses are impacted more than others.
“While we have experienced increased floods and bushfires in recent years, climate change impacts are certainly longer term,” said Prof. Sherris. “These could lessen depending on how well we are able to control temperature increases through climate change mitigation: reductions of greenhouse gas emissions and fossil fuel and other efforts towards sustainability.”
Prof. Sherris also noted the Australian Prudential Regulation Authority's (APRA) recent statement that supply chain disruptions, skill shortages, inflationary pressures, and cyber risks pose challenges within the general sector.
“Some of these are shorter term, and some – like climate change risks – are longer term. These all add to the uncertainty that insurers must manage, which must be funded from raising premiums, or if through shareholder capital, then providing investors with lower profits and returns,” Prof. Sherris said. “They will also impact reinsurance prices that insurers must pay to manage their aggregate risks since they not only impact Australia but [also] international pressures on the insurance industry more broadly.”
So, what can policyholders do to minimise sky-high insurance costs? Prof. Sherris recommends:
