Insurance is the ultimate grudge purchase – we all know we need it but when premiums are flying upwards, nobody wants to pay them.
It is an issue that has come to the fore after a bad run of floods in Australia which has really hiked up the affordability and also the availability of insurance.
So, what can you do as the price of insurance rises fast or if it no longer available as the pointy end of climate change starts to expand the boundaries of flood prone areas?
It is a question that a parliamentary inquiry into the sector is looking at urgently as many Australians are being priced out of coverage in the parts of the country that are most at risk from natural disasters.
Inquiry looking at massive flood costs
The inquiry is looking at the floods that caused billions of dollars of damage across Queensland, NSW, Victoria and Tasmania last year, and which also killed at least 27 people.
The south-east Queensland and northern NSW flood around Lismore cost insurers an estimated $6 billion, making it the single most expensive insurance event in Australian history.
It is a cost that we are all bearing, even if we don’t live in a flood prone area, with insurance prices as measured by the Australian Bureau of Statistics jumping an extraordinary 14.2% in the year to June, which is the biggest annual increase since the introduction of the GST.
Not only has insurance become more expensive, many more consumers are not happy with how insurers are dealing with their claims, with insurance complaints rising 76% over the past year.
The inquiry is due to report by the end of September next year so that raises the question of what you can do about insurance in the interim?
Well one thing you can’t do is reform the insurance sector or reduce the macro effects of climate change – that is way outside the control of any individual – but there are some simple steps to take to reduce the impact of rising premiums.
What to do about insurance costs now
Firstly, evaluate each individual policy and make sure it is still really necessary.
For example, is it really worth continuing to pay comprehensive insurance that might be worth a quarter of the replacement cost each year on a 15-year-old car rather than a more limited but cheaper third-party policy in case you smash into a Ferrari.
Secondly, look at the entire range of insurance policies you have and take them all to an insurance broker to see if they can do a better job of saving money.
Many households have many more policies than you might think, including death and disability cover (often within superannuation), house and contents policies, car and motorbike insurance, health insurance and possibly income protection insurance as well.
As an alternative to a broker who has wide and valuable experience, you can shop around yourself and try to get lower premiums on each policy.
There are plenty of comparison websites but beware – many are not comparing a comprehensive sample and are paid to push certain products and often exclude others.
Insurance can be quite complex too, so you need to be careful that you are comparing apples with apples when it comes to coverage.
Beware the loyalty tax
There is such a thing as a loyalty tax so switching policies can save money, although this year I have heard many reports of potential switchers staying put after realising their current insurer is more competitive than they thought, despite a whopping premium rise.
Thirdly, make sure your major assets such as house, car, contents and life are covered by insurance companies that can be relied on.
There is no benefit in cutting your premium to the bone only to discover that your cover is vastly inferior or offered by a company with a poor or tardy record of paying out claims.
Look to bump up your policy excess
Fourthly, increasing policy excesses – providing you can reliably access that money if the worst should happen – is a good way to reduce premiums because it reduces the number of small claims the insurer has to deal with.
Similarly, with health insurance it is possible to save money by excluding certain procedures that may not be required such as those associated with pregnancy.
A fifth thing to check is whether you are paying extra for the convenience of paying monthly – if so, an annual premium that you budget within your cash flow could produce a big saving.
Insurance is a big and poorly understood area so it is to be hoped that the parliamentary inquiry comes up with some longer-term answers.
Insurance relies on having a sizeable pool of customers and even larger international reinsurance pools so that entire concept could be challenged if the size of premiums forces large numbers of Australians to drop their cover and effectively court disaster by self-insuring their own risk.
Add in the potentially disastrous cost of increasing natural disasters and this is a serious problem that requires urgent action.
For those whose premiums have risen to absolutely unaffordable levels due to reclassification of a flood prone area, self-insurance may be the only alternative left, with the annual premium set aside in a separate account in case disaster strikes.
