Homeowners are likely to escape heavy premium rises when insuring their home and contents this year, but brokers are warning that some consumers might get stung on the inclusion of flood cover in their policies.

The cost of insuring Australian homes has soared in the past two years after insurers added more comprehensive flood protection terms to insurance contracts.

Thousands of homeowners in flood-prone areas in Queensland and New South Wales have been hit with massive premium hikes that have caused the cost of standard cover on some three-bedroom houses to balloon threefold to as much as $7000.

• Seven tips to maximise your tax return
• The easy way for under 30s to become millionaires
• Hockey’s bogeyman: government debt explained

While brokers believe that further big hikes are not likely this year, several told The New Daily that some homeowners across Australia could be in for a shock when they receive their premium renewal requests later this month.

In recent years, local councils have been updating the flood risk information of residential areas and many have only released that data in the past year.

Is this really going to happen to your house? Photo: AAP

For this reason, the risk profile of some properties built over, or near, hidden creeks and streams might change after insurers take into account the updated flood maps from councils.

Brokers are also warning clients that some insurers have been exploiting the introduction of flood cover to sting property owners in low flood-risk areas.

Many insurers now automatically include cover against the risk of rivers and creeks flooding even for properties that are remote from such natural waterways.

The result is that insurers have hit low-risk policyholders in Victoria and South Australia with premium increases to help manage the higher risk of insuring property owners in Queensland and NSW.

For example, CGU automatically includes flood cover in its standard policies and charges all property owners an additional premium – though it says there is no cross-subsidisation between states.

The broker’s view

Sydney-based broker Brook Halliday, of General Insurance Brokers of Australia, expects premiums for home and contents and most other lines of general cover to be in line with last year.

“I think premiums will remain pretty flat for most people this year, with any increases likely to be marginal,” he said.

“Property owners should, however, give some attention to how the inclusion of flood cover in policies is affecting their premium.

The Sydney housing market – the topic of much current discussion – is booming. Photo: AAP

“Some insurers have new flood cover built in to standard policies.”

Mr Halliday said that most Australians under-insured their properties because they paid little attention to the wording of contracts while looking for the deal on the premium.

“It’s really important to get the full value of the home insured otherwise you might be disappointed if something happens,” he said.

Mr Halliday said the recent surge in the Sydney and Melbourne housing markets was not likely to impact premiums in the near term because insurers measure risk on the likely cost to rebuild or replace damaged property – not the market value.

The good news

Since the HIH crisis in 2001, councils, community organisations and small businesses have copped big annual increases on premiums for most lines of commercial insurance.

However, Mr Halliday said that competition among insurers for these risks was now intensifying and cover for public liability, business interruption and property protection were likely to fall in the next six months.

“I think most commercial lines of insurance will come down by between five and 10 per cent,” he said.

This is particularly good news for sporting clubs and organisers of community events, who are required to take out public liability policies through councils or directly with insurers.

The pressure is on

Companies such as Suncorp take out their own insurance policies overseas. Photo: AAP

The latest statistics on the financial performance of general insurers indicate that the sector has withstood a run of high claims events in the 12 months to the end of March.

According to data gathered by the Australian Prudential Regulation Authority (APRA), the Brisbane hailstorm last November helped to drive up claims by 31 per cent to more than $4 billion.

While this has severely impacted the underwriting performance of big insurance groups such as Suncorp and IAG, the profitability of the sector has been mostly preserved by a surge in revenue from investment activities.

However, sustained falls on local and overseas sharemarkets in May could tempt some insurers to hike premiums to make up for recent negative returns.

Mr Halliday said the APRA data did not take into account the impact of the insurers’ reinsurance arrangements that were likely to reduce the effect of big claims events like the Brisbane hailstorm on their profits this year.

Big insurers such as Suncorp take out their own insurance policies with overseas underwriters – known as re-insurance – to minimise their losses on weather events likely to cause unusually high claims.