01.Through the roof
Since the start of the year CHOICE members have been weighing in with hair-raising stories of premium hikes for home and contents insurance, mainly due to the addition of flood cover.
The kicker is that some policyholders haven’t been given a chance to opt out of the tacked-on feature, a prerogative the government is considering making mandatory later this year as part of its national flood cover scheme.
According to what we’re hearing, letter bombs have been arriving in the mail in the form of shocker renewal notices. One member saw their premium jump from $650 to $3767 a year in an area where flood mapping shows a 1-in-100 year flood risk.
In another case, a member’s cover costs had doubled in a similarly low-risk area in Goulburn Valley, Victoria. Another premium reportedly went from $850 in 2011 to $4000 this year.
We contacted the Insurance Council of Australia (ICA) and were told the sharp increase are the results of a wholesale reassessment of risk and an effort to renew the industry’s capital reserves after one of the worst years on record and a resulting bad business outlook for the industry.
Eight officially declared catastrophes in Australia in 2011 are expected to cost the industry more than $4.9 billion in claims payouts when the numbers are finalised, compared with $2.1 billion in 2010, an ICA spokesperson told us.
“The costs of natural disasters will inevitably have an effect on insurance premiums as companies adjust their pricing to take account of individual risk levels and increasing costs of reinsurance. The size of any premium change will depend on the insurer.”
As for the mandatory opt-out question, the insurance industry maintains the government has not been clear on how it will work and points out that consultation about the government’s proposal for mandatory flood cover as a whole is ongoing.
The point of contention from a policyholder standpoint appears to be that premium hikes after the addition of flood cover to policies aren’t only related to the likelihood that floods will hit the homes in question. As the ICA has it, they also have to do with the industry’s reshaping of risk assessment and attention to profit margins, irrespective of whether particular homes are at risk.
The ICA spokesperson added that high taxes on premiums imposed by government were also a factor. The industry body recently warned that the 2% of homes in high-risk flood areas could face increases of up to $7000.
But the ICA also said homeowners could face blanket increases if and when the government compels companies to provide flood cover across Australia and the industry continues to price in risk and shore up the bottom line.
The spokesperson also dismissed the idea of a 1-in-100 year risk and said flood mapping by itself was not a conclusive indicator. More effective preventative measures should be provided by government in the form of levees, barrages, flood gates, improved drainage, land planning and building codes, the ICA says.
CHOICE and the ICA are in clear agreement on one key point – consumers can and should exercise their freedom to terminate their relationship with their current insurer in favour of a better deal if the premiums they’re being asked to pay don’t make sense for their particular circumstances, though homeowners at genuine risk of flood should always make sure they are properly covered.
“Though some insurers have offered flood cover for several years, others are introducing it this year,” the ICA spokesperson said.
“Each insurer’s product and policy conditions are different, and property owners should read their policies closely and contact their insurer if they do not understand what is and is not included. Providing additional relevant information to the insurer may influence the outcome. Policyholders who are not happy with their premiums or policy terms and conditions should invest the time in seeking quotes from other insurers.”
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