This week in insurance: Australia's insurance sector faces cost pressures

6 in 10 Australians said they are willing to spend more on protection against disasters.
 

Australia's insurance sector from 24 to 28 February saw less optimistic industry sentiments from life insurance to SME coverage.

Six in 10 Australians support increased spending on disaster mitigation measures such as bushfire and flood protection, according to a Royal Automobile Association (RAA) survey. Also, 80% of South Australians are increasingly concerned about the rising frequency of natural disasters and their impact on properties. 

RAA CEO Nick Reade said extreme weather events are putting more homes at risk and driving up insurance costs. He warned that without stronger mitigation efforts, insurance could become unaffordable for some households. According to Reade, 1.2 million properties in Australia face some level of flood risk, whilst 5.6 million homes are vulnerable to bushfires.

Similarly, home and contents insurance premiums are spiking up in Australia, a trend that could widen coverage gaps and expose more homeowners and lenders to financial risks, according to a new report from S&P Global Ratings.

The report, titled Australia's Home Underinsurance Could Spread Risks, warns that government intervention in the sector may increase, especially in high-risk areas where insurers are limiting coverage or exiting the market.  S&P Global Ratings credit analyst Angela Zhou said insurers are expected to continue raising premiums to improve margins and cover higher weather-related claims. 

Furthermore, nearly a third (29%) of Australia’s micro, small and medium enterprises (micro-SMEs) say they could not manage a financial setback exceeding $10,000, whilst 23% would struggle with any financial disruption if uninsured, revealed a QBE survey. The report finds that amongst those with coverage, 79% experience peace of mind, 81% feel protected, and 53% are more confident in taking financial risks, enabling innovation and growth.  

Confidence in insurance coverage remains high, with 83% of micro-SMEs—businesses with fewer than 10 employees, representing up to 2 million enterprises—believing their current level of protection is sufficient. QBE managing director, Consumer, Julie Starley, emphasised the importance of adequate coverage, noting that claim payouts for unforeseen damages and business interruptions often exceed $10,000—an amount more than half of micro-SMEs (52%) would be unable to afford.