Paula Jarzabkowski says Australia risks insurance crisis as premiums increase - ABC News
Paula Jarzabkowski says Australia risks insurance crisis as premiums increase - ABC News
Paula Jarzabkowski says Australia risks insurance crisis as premiums increase/ By
Kenji Sato
Australia risks "sleepwalking into a crisis" unless it makes drastic reforms to its insurance sector, according to University of Queensland academic Paula Jarzabkowski.
Key points:
- An academic says the insurance industry is in the midst of an existential crisis
- Paula Jarzabkowski says sweeping reforms are needed to keep the industry viable
- An Actuaries Institute report has found average home insurance premiums have increased 46 per cent since 2022
Professor Jarzabkowski's comments come after an Actuaries Institute report found Queensland had the least affordable insurance premiums in the country.
More than 40 per cent of Far North Queenslanders suffered "extreme" rental stress, with Australia's average home insurance premiums increasing 46 per cent since 2022.
Queensland's mean home insurance premiums increased from $2,089 per year in 2022 to $3,032 in 2023.
Within the same time period, Australia's mean home insurance premiums rose from $1,534 to $2,234.
The Strategic Management expert said Brisbane had experienced significant premium hikes even in areas completely unaffected by the 2022 floods.
Professor Jazabksowski said climate change was causing more natural disasters which in turn led to more insurance claims, higher premiums, and fewer insurance holders.
She said as more people dropped out of the insurance pool it led to a vicious cycle of steeper premiums and more people cancelling their insurance.
She said fewer people were buying insurance in the first place due to its increasing unaffordability.
Professor Jazabkowski said the industry needed sweeping reforms, or else it risked becoming totally unviable.
"I don't want us to sleepwalk into this crisis," she said.
"Insurance is an industry which is hidden in the background but is absolutely fundamental to the way our society works.
"Our credit, our lending, our ability to own houses is built around insurance — we don't want to lose it."
What can we do?
Professor Jazabksowski had three main recommendations which she said were necessary to keep the industry viable.
The first was to build homes away from the highest risk areas which were the worst affected by climate change.
The second was for requirements that new homes be built with sturdier roofs and higher floors in flood-prone areas.
The third was a mandatory insurance pool for the public and private insurance sectors to reduce the overall premiums.
"I hope we use that as a chance to change our policies; let Australia lead the way on a problem for the world, let us not just wait until it's too late," she said.
"Australia is the most underinsured and it is the most disaster-prone of all advanced economies, so we are the best-placed to work out how to fix this problem."
Actuaries Institute's report author Sharanjit Paddam said premiums were increasing at an alarming rate, and would likely continue for the foreseeable future.
"This is the largest increase in home insurance premiums I have seen over the last two decades," Mr Paddam said.
"We expect these home insurance affordability pressures are likely to continue to worsen due to climate change." Loading
Related Knowledge Center: Climate economics
Climate change is now a driver of the world’s economy. The impact is profound:
- Catastrophic weather events — hurricanes, floods, droughts, high temperatures — are more frequent and more extreme. The cost can be measured in both the initial damage caused and the longer-term impact on the economy.
- Vulnerable communities are increasing climate-related investments, hardening infrastructure and taking other protective measures.
- Investment in carbon capture and storage technologies is increasingly rapidly.
- Governments are making investments and crafting regulations to reduce emissions of carbon dioxide and other greenhouse gases.
On top of all of this is the cost of uncertainty. As the Fourth National Climate Assessment, released in 2018 by the U.S. Global Change Research Program, says, “The assumption that current and future climate conditions will resemble the recent past is no longer valid.”