Opinion: Insurance – the cost of ‘just in case’

It’s the safety net for trapeze artists, the safety harness for rock climbers, the helmet for motorcyclists.

While not everyone performs aerial acrobatics, scales rock formations or rides motorbikes, they understand and respect the need to protect against “just in case.”

It’s insurance – the protection against something bad if the unexpected happens.

And, like sports people who use safety measures “just in case,” everyday Australians want to protect their biggest assets in life, including their home, contents, motor vehicle and health.

Yet, in the midst of a cost-of-living crisis, and the ongoing struggle to afford competing necessities – how important is insurance and what sacrifices are made to keep it?

Recent National Seniors Australia (NSA) research of around 6,000 older Australians aged 50 and older shows insurance is the one thing many people will try to hold on to, no matter how tight their belt.

The increasing cost of insurance premiums, whether they’re for home, contents, motor vehicle, health or travel are some of the biggest cost-of-living concerns keeping older Australians awake at night.

Yet, as the responses to our research show, maintaining insurance often comes at the expense of other necessities.

“I don’t have private health insurance. I try to keep up with insurance for home, contents and car because if anything happened and I was not insured, I would struggle. I cut back on other things.”

“Some of the insurances I still have to keep but I have had to sacrifice other things to keep these, for example: not buying new clothes, not buying birthday presents for my family and so forth.”

“Health and general insurances are both less affordable but I regard them as absolute priorities and would sacrifice a lot of discretionary spending before dropping these.”

According to ABS data, insurance premiums rose 16 per cent in the 12 months to the December 2023 quarter – the highest annual increase since 2001. It has been reported insurers have been advising customers of double-digit price increases for most products including home and motor vehicle.

So, why are insurance premiums rising so much?

Much of the increased costs for home insurance are attributed to the increased frequency
and destructive impact of weather events and natural disasters, resulting in more claims, more often, and higher costs to settle these claims. In December 2023, Tropical Cyclone Jasper crossed Cairns before flooding Queensland’s far north.

Weeks later, Tropical Cyclone Kirrily crossed Townsville and in February, fires devastated parts of western Victoria. Three major events in three months.

For homes in vulnerable regions, pricing for extreme flood risks can be as high as 4 per cent of a house’s sum insured before tax. Add to that 10 per cent for GST and between 9 per cent – 11 per cent in State Stamp Duty – it’s no wonder people are tossing-and-turning at night!

When it comes to motor vehicle insurance, higher premiums are trending significantly upward with a 24 per cent increase since May 2021.

Larger claims are due to multiple factors including increasing repair costs, increasing vehicle prices with used vehicles up 54 per cent, new vehicles up 18.5 per cent since the pandemic, and repair delays – the median wait time to get a vehicle repaired has increased, keeping customers in hire cars longer and increasing hire car costs.

Hire car spend increased by 16.5 per cent in 2022. Also, lengthy wait times for new vehicles result in more people choosing a cash settlement. Cash settlements are more expensive for insurers than vehicle replacement which is subject to discounting from the vehicle manufacturer.

Cost-of-living impacts are often talked about in terms of housing affordability, fuel, electricity and grocery prices. While these are important issues which NSA advocates on, they can often be overshadowed by the cost of “just in case.”

While some older Australians are doing well financially, many others are not. They are reorganising their lives to manage and they are deliberating everyday over each spending decision.

When it comes to managing cost-of-living pressures, many older people are struggling to
keep their safety net in place, posing a threat for their future financial resilience. This is a
problem for government, as much as it is for individual consumers.

Chris Grice is National Seniors Australia Chief Executive Officer