Soaring repair costs: What's the impact on business and residential property insurance?

Soaring repair costs: What's the impact on business and residential property insurance? | Insurance Business Australia

Soaring repair costs: What's the impact on business and residential property insurance?

The recent flooding has pushed house repair costs even higher and added to the building industry’s already stressed supply chains. In a recent Australian Financial Review report, a UBS analyst said the insurance industry is having difficulty facing the flooding’s inflationary squeeze on prices and availability of materials and labour. Brokers selling residential and business property insurance to their customers are also caught up in this tough market.

“I suppose there’s two arms to that,” said Ian Jones (pictured), executive director of Newcastle based Ian Jones Insurance Brokers.

“COVID generally stopped manufacture, production, supply and delivery right down the whole chain to the end destination, so that was one thing,” he said.

However, the 35-year industry veteran said the last few years of natural disasters and the recent flooding, especially in NSW and Queensland, have pushed these issues to a new high.

“That creates a whole new level on top of COVID because the little supply we’ve got is being absorbed by this mass destruction of properties which obviously need the same goods. So it’s a hell of an effect,” he said.

Read next: Rising premiums seen to impact property values in areas exposed to climate risk

So how is this impacting the insurance Jones can offer to residential and business property owners?

In terms of his role as an insurance broker, Jones said these challenges aren’t impacting how he sources the insurance.

“The biggest impact to the consumer is the increased costs of insurance,” he said.

This is partly because insurers are dealing with what he described as an “abnormal” rise in the costs of building materials.

“Insurers have got to put up premiums to cover those increased costs,” he said.

Jones said natural disasters are causing these rises “to a degree” but not to the same level as the current hard market.

“The insurance cycle at the moment - in my 35 years this is the worst I’ve ever seen it. The very peak of what we call a hard market,” he said.

Jones said this is impacting the residential insurance sector but not to the degree that it’s impacting commercial property insurance.

“So insurers start deleting risks and not offering renewal and that causes its own problems,” he said.

The impact on the residential market, he said, comes when these impacts filter down and underwriters, “because of excessive losses” decide to drop out of markets.

“We’ve seen two residential underwriters in the last three years drop out of the market altogether and not wish to insure residential properties,” said Jones.

The impacts of the hard market are obviously not unique to the property insurance sector.

The Newcastle broker said some businesses are hit harder than others in this situation. For example, said Jones, he’s currently looking into finding coverage for an Australian based company that runs international bicycle tours. A few years ago, this company would have found insurance coverage but today, in a market with reduced capacity, many insurers don’t want to write these types of risks.

“It could be in engineering, in mining, in many occupations where they simply say they don’t want to write them, full stop,” he said.

Jones said this means that insurers who stay in these markets push up their premiums to compensate for the reduced capacity.

“So we have an increased cost of insurance to the consumer. Once again, that filters down through to the consumer market through to houses, contents, landlords, cars, that sort of thing,” he added.

The Insurance Council of Australia’s (ICA) current estimate of claims costs from April’s Queensland and NSW Floods stands at $2.52 billion. About 180,000 flood damage claims have been counted. However, the ICA said there are still more than 145,000 claims outstanding. Given the number of uninsured properties, the real damages cost of the floods is much higher.

The ICA recently welcomed an NSW government decision to change interstate building and construction licensing to make it easier for tradespeople to work across borders.

Read more: Construction licensing to be revised for hastened rebuilding efforts in NSW

The Automatic Mutual Recognition Scheme will allow qualified tradespeople from all states and territories, apart from QLD, to work outside their home state in community rebuilds following extreme weather events.

“The critical shortage of builders and trades across impacted regions continues to pose a challenge for communities affected by the recent extreme weather,” said ICA CEO Andrew Hall.

“Mutual licensing recognition of builders and tradespeople between states and territories will go a long way to addressing this shortage and support faster community recovery from disasters,” he added.