As insurance premiums surge, there are warnings that tens of thousands of households could be breaching their mortgage contracts by ditching their home insurance.
A report by the Actuaries Institute found 1.6 million homes around the country were experiencing “extreme home insurance affordability pressures”, which means they were paying more than a month’s worth of pre-tax household income on insurance.
“It’s actually grown by 30 per cent from 1.2 million to 1.6 million households in just one year,” actuary Sharanjit Paddam, one of the report’s authors, observed with some alarm.
The Actuaries Institute report calculated that 180,000 of those households under extreme home insurance affordability pressures had mortgages, which was about 5 per cent of households with home loans.
Many of the group under extreme pressure are likely to have ditched home insurance, which comes with a huge risk as it places a borrower in breach of their mortgage conditions.
However, the exact number without insurance is unknown as no one measures it, not even APRA, which regulates both the insurance and banking sectors, along with superannuation.
“That’s something we don’t collect data on,” APRA chair John Lonsdale told a recent ASIC event.
“There’s anecdotal data out there but it is, we believe, a very real issue and a growing issue for the country.”
It’s not just a problem for individual home owners. Uninsured properties are also a major source of risk for the banking sector, according to Mr Paddam, a principal with Finity Consulting.
The report he co-authored estimated banks were owed around $57 billion in outstanding loan balances by those 180,000 borrowers as of March 2024, representing 3 per cent of all home loan assets, which Mr Paddam described as “a very significant number” that should send alarm bells.
“If you compare it to the US, for example, during the GFC, the worst the delinquency rate in the US for home loans got was 9.3 per cent and that caused massive problems through the US market,” he warned.
“So us already being at about 3 per cent — and that will get worse over time with climate change — is going to be a stress on the banking system.”
Uninsured borrowers already seeking help
Several people around Australia told the ABC their home insurance premium had jumped so high this year they would not be able to afford it.
One woman said her premium went from $3,000 last year to around $30,000 this year without making any claims.
She believed the increase was due to storm activity in her region last year, but such a high premium was not affordable and she said her family would either be hugely underinsured and forgo disaster insurance or have no insurance at all, which would be in breach of their mortgage — so she wanted to stay anonymous.
It is a worrying trend that the Financial Rights Legal Centre is seeing more and more.
“I am absolutely seeing more examples coming through the phone lines of people who simply cannot afford their insurance anymore and have no choice but to be uninsured,” senior policy and communications officer Julia Davis told the ABC.
As Ms Davis pointed out, $30,000 was prohibitively expensive for most people to afford and would prompt the majority to forgo the insurance.
“Once insurance becomes out of reach, what choice does somebody have?”
‘Wild’ price rises for home insurance
And then there are people like Blair Jeffreys and Ella Green, a newly engaged couple in the northern NSW coastal town of Yamba who are busy planning for their wedding next year.
While they will be able to pay their insurance bill, it will come at the cost of their big day, with the couple dipping into their wedding savings to pay the premium.
“Last year, the premium was about $2,069 and then this year, when we got the annual premium, it had gone up to about $3,600 which is more than a 75 per cent increase, which was shocking. I couldn’t believe it,” Mr Jeffreys said.
Mr Jeffreys said the flood insurance component alone had jumped from $26.11 this year to $757 for next year.
Mr Jeffreys said he had never made a home insurance claim nor had there been any natural disasters in his area in recent years, and the insurance company did not provide a reason for the price increase.
For its part, the insurance industry says the price rises are beyond its control
“Wherever you live in Australia at the moment, regardless of whether you’re impacted by extreme weather or not, there has been upward pressure on insurance premiums,” Kylie Macfarlane from the Insurance Council of Australia said.
“That has been for a number of reasons: those include things like the rising value in Australian homes, which means the asset you’re insuring has gone up and therefore the amount of insurance cover you need has also increased; the impact of inflation, particularly on building materials and labour,” explained Ms Macfarlane.
“APRA statistics actually show that, over the last four years, insurers have lost over $650 million from home insurance policies, which shows that, ultimately, they’re still paying out more to home owners to repair or rebuild their home after an unexpected event than they’re actually collecting in insurance premiums.”
After working hard as an electrician for decades, Blair Jeffreys feels he is struggling now more than ever
“I feel that the working class isn’t the middle class anymore. The poverty line is coming up so much you could be working 40 hours a week plus, and you’re still scraping by,” he lamented.
“I feel like the Australian dream is getting harder and harder to obtain.”
The situation is leaving financial counsellors feeling helpless to offer assistance when people call them with a huge insurance quote.
“Sometimes they call us but, unfortunately, there’s not a lot of advice we can give someone who can’t afford insurance, except to shop around,” said Ms Davis from the Financial Rights Legal Centre.
“There’s really no way to challenge an insurer’s decision not to cover you or to price you out.”
The centre is calling for the government to regulate pricing in the sector.
“We think, at this point, the industry just needs more oversight. We’re calling on the government to put in place a permanent national insurance pricing monitor,” Ms David added.
“We know the government already regulates pricing of things like health insurance and workers comp, and they oversee things like compulsory third-party car insurance.
“It’s time that we start treating home insurance like a utility.”
Also read: This is why your insurance premiums keep going up
We rent and have always taken out home and content insurance, but not this year. The well is drying up.
Over the last few years mu home and content insurance has jumped upwards each year from approx $2400 to $3000 to $3800 to $4920. Each time have gone to the local office and got their “best price” translating to a reduction of $100 to $200 odd. This year (December) an immediate reduction from $4900 down to $4550. Of that, the base premium is $3350 and the remainder taken up with FSL/ESL $460, Stamp Duty $370, GST $380 so the government profits greatly on the increases to our premiums.
On expressing that I would consider this lower price offered, the insurance staff person immediately said we’ll match insurers such as NRMA and Allianz if you find they can give over quotes.
I immediately tried the local insurance broker who researched it and found he couldn’t get a lower quote and indeed they were all much higher, in fact about $2000 higher. I then tried NRMA and spent some time on the phone telling them that I wanted a quote for a similar policy to this current one that I have as I wanted to compare apples with apples. She understood. We went through all the details with my quoting the various figures etc in my current one. At the end of it all, he gave me a quote of $3850 for a similar and, in fact, a little better policy so a sizeable amount cheaper than the discounted price my current insurance company offered me. It’ll be interesting to see if they will match the NRMA which, to me is not good enough – they need to do a Bunnings and offer 10% less than the lower price I have found.
The thing is, that if one is going to keep on with home insurance, one must haggle with the insurance companies and research to find better prices.
As a “self funded” retiree on part pension my wife and I, like so many others are struggling on our low income and keep wondering if we can continue to pay out such a big proportion of our very limited income on insurance premiums while at the same time absolutely afraid to cease being insured for that might the year when a bushfire burns us down!
Governments could reduce the insurance burden on home owners by either decreasing or abolishing stamp duty and GST on them as well as reducing the levies for FSL and ESL.
I dropped my home and contents insurance about nine years ago when premiums began to rise way faster than inflation. Would be totally unaffordable now.
Had never needed it, never made a claim and probably never would.
Plenty of friends are doing the same thing as the premiums are beyond ridiculous.
We were very surprised when GIO’s renewal policy arrived this year for our home and contents insurance. The premium had increased substantially by 40% for only $454K of home cover and $100K of contents.
So we started researching cover for around $1m of home insurance and $100K of contents cover. We ended up with Youi for $1.5m of building insurance and $100K of contents cover for $3,444 – less than the $4,000 odd quoted by GIO for the $454K and $100K. It pays to shop around. We have been GIO customers for probably 30+ years – and that made no difference. Unfortunately it takes a lot of time and research.
Yes, I agree with you. GIO is the insurance company that I didn’t name in my post above. I went there today to show them my NRMA quote, pointed out it was a bit better policy than GIO’s one and suggested they should do a “Bunnings” and give me 10% less than the NRMA quote. The girl said they couldn’t;t do that and after fiddling around on the computer and pen and paper for a few minutes she produced another new renewal with the same price as NRMA’s quote. I told her I’d think about it. On walking out I said to my wife, “Incredible, isn’t it that they are now offering a price approximately $1100 below their original one – it just shows they were trying to rip us off.” My wife said they count on the fact that most of their customers won’t go and get other quotes and just pay. What a rip off it ll is! Frankly, I think it is absolutely disgusting. I’m pretty sure I’ll go with the NRMA quote and will then write to GIO to tell them why. To think that I’m in my 80s and have always insured my houses with GIO since my early 20s. What an appalling way to treat their old customers and indeed any customers.