Australian insurers anticipate premiums to rise again this year, amid increasing concerns regarding the cost of living and impact on the country’s inflation rates.

If your insurance premium has gone up in the last year, you’re not alone. According to the latest Consumer Price Index data, last year insurance premiums saw their biggest price increase since 2001.

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Daniel Sedlarevic: State Manager of Cowden Insurance, Michael Sedlarevic, shared an insight into what the cost of insurance may look like in the future.

Michael Sedlarevic: So there are a number of factors that come into play when we talk about insurance pricing and what that might look like moving forward. Obviously, insurance prices reflect the level of risk within any given market. So obviously that means different types of insurances will have different pricing based on what those risk factors are. In Australia, the insurance market represents approximately 2% of the insurance market globally. So what that means is what happens on a global basis has an impact here in Australia with what we do at the moment. Insurance globally is currently in what we call a hard market. What does that mean? It means that capital is scarce for insurers. Reinsurance is more difficult to obtain and risk appetites are low, and all of these factors have an impact on the cost of premiums here locally in Australia.

Daniel Sedlarevic: Are there any major factors that contribute to price increases?

Michael Sedlarevic: In Australia, we’re very, very prone to extreme weather conditions. In fact, you know, parts of Australia are amongst the highest or top three ranked places in the world for bushfire events. You know, we all know the conditions that we live in here. We have many, many of these major natural disasters. Things like extreme weather conditions, fire, flood, those types of outcomes have a massive effect of insurance costs and premiums. Bushfire prone and cyclone prone locations because of that attract very, very high premiums. So it’s, you know, it’s not a great place to be in at the moment.

Daniel Sedlarevic: CEO of Cowden Insurance, Alan Tokeley, responded to insurance costs rising so highly.

Alan Tokeley: As with most things, it isn’t one factor that determines price. Insurance premiums have been steadily rising due to a number of factors, which include things like inflation, which, to put in simple terms, is the cost of a claim today, which will cost more than it did 12 months ago.

Secondly, let’s look about natural disasters. Australia experiences more than its fair share of natural events. These include bushfires, storms, flooding, cyclones and things like hail. The 1 in 50 or 1 in 100 year events are happening more frequently.

And finally, let’s look about workforce shortages after a catastrophe. Insurers need to need skilled labourers to repair and reinstate the affected policyholders to secure this workforce, which requires insurers to pay market rates which are high due to supply and demand. Even then, there are significant delays which compound the costs of claims because of further loss to unsecured property, mould and mildew occurring and temporary accommodation blowing out costs.

Daniel Sedlarevic: The December-quarter consumer price index data revealed, insurance and financial services showed the highest price increases across the year, with insurance prices rising 16.2 per cent. How is this justified and will this number see a change in the next December quarter?

Alan Tokeley: In the short term, domestic premiums will continue to rise at a similar rate until some of these external factors slow or normalise.