Finance Your Budget Wild weather unlikely to inflate insurance premiums
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Wild weather unlikely to inflate insurance premiums

south australia floods
Home insurance premiums in South Australia are not expected to skyrocket despite recent floods. Photo: AAP
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Homeowners across Australia are not likely to face sharp hikes on insurance premiums over the next 12 months despite a string of extreme weather events over winter.

Early estimates by the Insurance Council of Australia indicate the wild storms that buffeted South Australia in September are not likely to generate big insurance claims because the total property damage is lower than expected.

According to the ICA’s general manager of communications, Campbell Fuller, the catastrophic June floods in NSW and Queensland, which triggered claims of around $400 million, are also unlikely to spark big premium increases.

“Natural disasters over the past year are unlikely to have a significant impact on premiums,” Mr Fuller said.

“Insurers expect storms, floods and other extreme weather events each year and factor these into their premium pricing.”

According to market research firm Canstar, South Australian homeowners have enjoyed the lowest average premiums in the country for several decades and that is not likely to change because of the recent floods and power blackouts.

Today, the average policy costs $913, according to Canstar.

That makes SA almost the cheapest state for home insurance, just behind Tasmania where the average home and contents policy costs $883.

Average home insurance costs by state

canstar premium data

Outlook is reasonably promising for premiums

Homeowners across most of the country are not likely to see their insurance premiums blow out in 2017, according to most brokers and market researchers.

Premiums are expected either to rise modestly or reduce in the year ahead, depending on the risk profile of the state and region you live in.

The main reason for the positive outlook is that so-called reinsurance costs borne by big insurers such as Suncorp, QBE, IAG and Allianz, have been falling in the last 12 months by as much as 20 per cent.

The flooded Ungarie from the air on June 21, 2016.
The NSW town of Ungarie was under water in June this year.

Reinsurance is special insurance that local insurers take out from international insurance companies to limit their losses against big natural disasters, such as cyclones and hailstorms in urban areas.

Since 2013 the insurance bills for natural disasters in Australia have declined and this has meant that local insurers had to shell out less for their reinsurance cover last year.

“The cost of reinsurance has come down in the last 12 months,” said Mitch Watson, head of research at Canstar.

“That is the main driver for why there are likely to be modest changes in premiums for home and contents insurance.”

The trend identified by the Canstar research is supported by quarterly claims data published by the ICA.

Premiums rising again in North Queensland

In 2015, most homeowners across the country enjoyed average premium reductions of around five per cent.

Property owners in cyclone-prone regions in North Queensland received average reductions of around 11 per cent, but much of that dissipated in the 12 months to the end of June this year.

North Queensland cyclone damage
Natural disaster-prone North Queensland is home to the highest home insurance premiums in the country. Photo: AAP

The average cost of a home and contents policy in regional centres such as Cairns and Townsville stood at $3808 in June, according to Canstar.

The high cost of insurance in North Queensland has made it more economic for young people to seek rental accommodation rather than buy their own homes.

“Potentially, the high cost of insurance in northern parts of Queensland means that it might make more sense to rent than buy,” Mr Watson said.

“North Queensland carries a higher risk profile because of the threat of cyclones and many insurers won’t even write business above the Tropic of Capricorn.”

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