The upcoming May federal election in Australia has shone a glaring spotlight on the urgent need to improve insurance affordability, but industry players believe that the initiative will be an uphill battle without the cooperation of all stakeholders.
Early in February, opposition leader Peter Dutton threatened to break up large insurance companies "to make sure that we're not being ripped off."
The Australian Consumers Insurance Lobby expressed support for Dutton's promise to shake up the industry, calling it a necessary step to hold insurers accountable "for skyrocketing premiums, unfair practices, and their failure to implement real affordability solutions."
The news led to a dip in the share prices of the country's largest insurers, with Suncorp Group Ltd. experiencing the biggest drop at about 20%. The stocks have since slowly recovered, but conversations around what the next Australian government should do about insurance affordability continue.
Improving insurance affordability in an evolving risk landscape is a challenge that will likely force government intervention, according to Angela Zhou, senior analyst for insurance ratings, in an S&P Global Ratings webinar. However, government-related initiatives tend to carry a moral hazard risk as they could mask underlying issues that contribute to higher premiums.
A collaborative effort among the government, the industry and local communities is essential to address the worsening insurance affordability, according to Insurance Council of Australia (ICA) CEO Andrew Hall.
"As an industry that prices risk, we know that the only sustainable way to reduce pressure on premiums and close the protection gap is to reduce or remove the underlying risks," Hall said.
The rising cost of insurance is driven by extreme weather due to climate change, development in high-risk areas, ongoing inflation and supply chain shortages, according to the ICA, which recently released policy recommendations for the next Australian government.
The ICA recommended several tax and regulatory reforms to ease cost pressure on premiums, including the abolition of insurance taxes, the creation of a flood defense infrastructure and the prohibition of development in high-risk areas.
QBE Insurance Group Ltd. also sees the need for collaboration especially among the insurance industry, governments and construction industries to improve resilience, according to a spokesperson.
The insurer supports the Coalition's financial services reform plans "particularly the focus on productivity, addressing regulatory burdens and compliance costs across sectors and importantly, reducing the crowding out of private enterprise."
The Coalition's election promise to roll back regulation for the financial services sector includes more flexible capital requirements to free up funds for investments, according to a speech by Shadow Treasurer Angus Taylor.
An Insurance Australia Group Ltd. spokesperson said the insurer is also willing to work with governments at all levels to combat the effects of extreme weather and natural disasters on communities.
At the company level, Insurance Australia Group tries to alleviate the impact of premium costs on customers by providing financial support to some struggling ones. In some cases, the insurer can lower premiums to customers who mitigate risks to their properties. The insurer also supports mitigation projects to protect people and properties from extreme weather, the spokesperson said.
The next Australian government's support for the insurance industry is crucial to improve insurance profitability, according to the ICA.
"Without a thriving private insurance market, the financial burden of damage, disaster, and recovery would fall heavily on governments, communities, and businesses — a cost every Australian would ultimately bear," Hall said.
