It almost feels like saying a bad word, particularly in the context of seemingly ever-rising premiums, but unfortunately it is one of those facts of life that we just can’t do without – as has been illustrated to devastating effect over the past weeks.
Here in Cairns, we’re used to premiums that feel higher than they should be – certainly higher than expected for those relocating to the region, with these higher rates “justified” by a perceived added risk from flooding or weather events such as cyclones, though often it comes down to limited competition among insurers.
Like any industry where the consumer has few options – less choice invariably turns into higher prices, because who else are you going to go to? This has been particularly felt in the strata (unit) insurance space, where the number of insurers has shrunk significantly, and soaring premiums have been a big part of why body corporate costs can feel so unwieldy. In some cases, I have been told of insurance premiums for apartment buildings in the CBD changing by over $100,000 within the space of 12 months!
This year, there is a bit more hope shining through as more competition has crept into the house insurance market and long-term rumblings about a change to the environment have gotten louder with the introduction of the Federal Government’s reinsurance scheme. A policy that has been waiting in the wings for literally years, this government proposal will see a $10,000,000,000 (ten billion) Commonwealth Guarantee designed to lower the risk for insurers, with premiums expected to drop accordingly. Designed with a particular focus on Northern Australia, there are projections of potentially a circa 50% reduction in premiums between households and strata, though naturally we can expect the flowthrough to take some time.
Offsetting that potential benefit, we are also likely to see changes to policies flow through as a result of southern flooding events. Insurers are going to have a big bill to cover in the coming months and they’ll be looking to make that money up somehow – unfortunately a “changing risk profile” will factor in there.
One more thing to look out for when renewing – with the increased costs of construction comes an increased replacement cost for your home when it comes to insurance. Make sure your policy is right for your circumstances and should the worst occur, you can rebuild the whole home within your coverage – not just the living room. As always, talk to your local (insurance) expert.
Tom Quaid is the REIQ Zone Chair for Cairns