One of the biggest shocks arising from the Australian Bureau of Statistics (ABS) monthly inflation gauge for November was the rapid spike in insurance premiums, as shown in the next chart:
Insurance premiums continued to rise very strongly, notching a record high 16.2% annual growth in November, reflecting still-elevated building costs (and generally high inflation), higher reinsurance costs, alongside adverse weather events.
Many insurance companies are now making flood cover compulsory to cover damage from both stormwater and river flooding, pushing up premiums to as high as $15,000 a year for some households as a result.
Allianz is one of the few that is offering a choice, and data provided by it to a federal parliamentary inquiry reveals that almost 74% of households with the highest flood rating risk do not purchase flood insurance cover, with many households in such areas stating that a lack of affordable cover is an issue.
“For some highly exposed communities, such as in the northern NSW region impacted by [2022 flooding], around 90% of customers do not purchase flood cover”, Allianz said.
Narelle Cole, a 70 year old single pensioner, told The AFR that cover was unaffordable. “I haven’t got enough for that sort of thing,” she said.
“A disproportionate number of disadvantaged communities are located in disaster-prone areas … households in these communities are more likely to be without house and contents insurance”, University of Tasmania academics Kate Booth and Bruce Tranter found in a recent paper cited in The AFR.
Six months ago, the Herald-Sun reported that building insurance costs are also soaring, which is adding to the construction industry’s woes and threatens to stifle the supply of new homes.
“Victorians will be slugged with a 43% increase to Domestic Building Insurance as the home building industry continues to feel the strain of surging cost and company collapses”, the Herald-Sun reported in July.
“The Victorian Managed Insurance Authority… announced the increase to premiums, which will take place from September 1”.
“Housing Industry Association executive director for Victoria Keith Ryan said the decision to increase premiums for this insurance by 43% was a “blow for Victorian home builders and their clients””.
“Mr Ryan said the change would also squeeze the cash flow of home builders who were already struggling with rising costs of labour and materials”.
While inflation in the cost of building a new home has moderated from recent highs, it still remains higher than pre-pandemic levels:
Add soaring insurance premiums into the mix and it is hard to see how the Albanese government’s plan to build 1.2 million homes over five years is remotely possible.
High interest rates, elevated building cost inflation, rocketing insurance premiums, and labour shortages mean that new home supply will remain stunted over the foreseeable future.
