Paul's Insights: Where it costs $5,000 to insure your home
By the first week in January, the insurance industry had paid out over $700 million on 9,000 bushfire-related claims made since September 2019.
Having insurance in place must be a tremendous relief for anyone who lost their home in the bushfires. However, these sorts of losses could prompt an industry rethink on what constitutes a high risk area.
Already, home owners in Australia’s cyclone-prone northern regions, face average home and contents premiums of more than $3,500.
A report by consumer watchdog, the ACCC, found that in Port Hedland in north-west WA, home and contents cover can cost around $5,256 annually. That’s almost four times the average of $1,400 across the rest of Australia.
Many northern Australian home owners are trying to cope with higher premiums by insuring their homes for less, or agreeing to pay a higher excess. Neither is an ideal solution. It can mean being underinsured or simply not having the cash to pay the excess at claim time.
Others are managing the situation by paying premiums in instalments. The trouble is, the ACCC says this can mean paying additional fees that add up to hundreds of dollars each year.
Not surprisingly, home owners in the north are bailing out of home and contents cover at an alarming rate.
Two in five homes in northern WA aren’t insured. One in four in the Territory aren’t covered by insurance. And in northern Queensland, one in five home owners have decided to go without cover.
This is a real problem because you still have to pay the mortgage if your home is damaged or destroyed.
The ACCC is looking into industry changes that could support more affordable home insurance in the northern part of Australia. And it’s an issue that could extend to other areas following the recent bushfire crisis.
In the meantime, it is critical to shop around for home and contents cover when it comes up for renewal each year. Insurance companies can assess the risk of your home quite differently based on their own claims data.
It can also help to point out to insurers any steps you’ve taken to protect your property from the main risks posed in your neighbourhood. It’s no guarantee that you’ll be offered a lower premium, but it can set your home apart from others when an insurer calculates the premium.
Summer is far from over. If you’re unsure how you can best protect your home against bushfires, the Rural Fire Service of NSW and Victoria’s Country Fire Service both provide valuable tips on their websites.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
Home insurance premiums are particularly high in northern Australia due to the increased risk of natural disasters like cyclones. For instance, in Port Hedland, WA, premiums can reach around $5,256 annually, which is significantly higher than the national average of $1,400.
To manage high home insurance premiums, some homeowners choose to insure their homes for less or agree to pay a higher excess. Others opt to pay premiums in instalments, though this can incur additional fees. It's also important to shop around for the best rates and highlight any protective measures you've taken to insurers.
Being underinsured in high-risk areas can leave homeowners vulnerable if their property is damaged or destroyed. Without adequate coverage, they may struggle to cover repair costs or continue paying their mortgage, leading to significant financial strain.
Homeowners can potentially lower their insurance premiums by shopping around for different quotes, as insurers assess risk differently. Additionally, informing insurers of any steps taken to mitigate risks, such as installing fire-resistant materials, may help in negotiating better rates.
High insurance costs have led to a significant number of homeowners in northern Australia opting out of coverage. For example, two in five homes in northern WA and one in four in the Northern Territory are uninsured, which poses a risk if their homes are damaged.
The ACCC is investigating industry changes that could make home insurance more affordable in northern Australia. This includes exploring solutions to reduce the financial burden on homeowners in high-risk areas.
Reviewing home insurance annually is crucial because insurance companies may reassess the risk of your home differently each year. By comparing different policies, homeowners can ensure they are getting the best coverage at the most competitive price.
Homeowners can find valuable tips on protecting their homes from bushfires on the websites of the Rural Fire Service of NSW and Victoria’s Country Fire Service. These resources provide guidance on how to prepare and safeguard properties against fire risks.
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