Time to read : 6 Minutes
Home insurance is a crucial safeguard for one of the biggest investments many of us will ever make. But in recent years, insurance premiums have skyrocketed, making it more expensive than ever before to keep your property safe.
According to ABS data, in October 2024, insurance costs rose 14% on the previous year, increasing more than any other category in the Consumer Price Index.
While a report by the Actuaries Institute found insurance affordability stress rose to 15% in the year to March 2024. Stressed households faced insurance premiums that were greater than one month’s gross annual income.
The insurance industry is blaming rising premiums on increases in construction costs, and extreme weather events due to climate change.
And climate change is happening globally. We’ve witnessed the devastation caused by the LA wildfires. The insurance price tag is estimated to be more than $US20 billion. With the state of California facing an insurance crisis, here in Australia what can we do so we don’t follow suit?
Having a better understanding of the factors that impact premiums, finding ways to mitigate risks, and looking at options to save on insurance premiums may be a starting point.
Why are home insurance policies becoming more expensive?
Let’s break down what’s driving the increase in home insurance premiums.
More natural disasters
This is a big one; natural disasters have caused more than $34 billion in insurance claims since 2010, with floods, storms and hail the biggest culprits. Insurance claims for cyclones and bush fires are also contributing to the cost increases.
Insurance companies face higher payouts due to the greater number of disasters, and these costs are passed onto the consumer via higher premiums. As climate change sees increased extreme weather events, this trend is likely to continue.
Rising reinsurance fees
Reinsurance is the insurance that insurance companies buy, which allows them to offset their own risk. Basically, your insurer’s insurance company. And when that goes up, it’s also passed into the cost of your policy.
This increase in extreme weather is also causing reinsurance premiums to increase. The Insurance Council of Australia reports these have gone up to 30% as of 2024.
Bigger construction costs
House construction prices rose by 40.8% from the end of 2020 to mid 2024, and this creates more costs for insurers when they have to pay out a claim.
In addition, rising inflation, labour and material costs also contribute to premiums going up because they add to the construction cost of new houses.
More data availability
With the introduction of tools like AI, insurers have access to more data and ways to crunch the numbers than ever before. This allows them to become particularly targeted in how they assess your risk portfolio as a policyholder, and their own risks as an insurer.
Australia’s population is also growing, which means more premiums will be required. As more people buy or rent property, our population is spreading further across the country, so there’s the potential for homes to be built in areas prone to flooding or fires.
When you combine these factors (population growth, weather events, data availability) it becomes clearer as to why insurers are concerned about protecting themselves, but it also comes at a major cost to consumers.
What can you do to reduce your home insurance costs?
This all sounds pretty bleak, and while some factors influencing premiums are beyond your control, there are steps you can take to potentially lower your insurance costs.
Shop around
Loyalty to an insurer often doesn’t pay. Compare quotes from multiple providers before you sign a policy and before you renew your current cover.
Insurers may assess risk differently from one another, and they may offer varying rates for similar cover, so always ask lots of questions.
Bundle policies
Some insurers offer discounts if you bundle multiple policies which can save you across the board.
For example, you may be able to bundle policies such as home and contents with car insurance, health insurance or pet insurance. Check with your insurer if bundling is available and find out how much you could potentially save.
Increase your excess
If you have some savings, increasing your excess can drop your premiums. The excess is the amount you’re required to pay – when you make a claim – before your insurer will cover the rest of your payout.
By paying lower premiums, it can help save you some cash and the savings can add up in the long-term if you never need to put in a claim.
Be aware: in the event you do need to put in a claim, you will need the money to cover a higher excess.
Mitigate risks
We’ve covered how more frequent extreme weather conditions are causing premium rises, and data is making it easier for insurers to plan for claims. Why not get ahead of these concerns by mitigating the risks in your area?
Here are some suggestions:
trim trees around your property
install water tanks
upgrade outdated electrical or plumbing systems and raise them off the ground if you’re in a flood-prone area.
While mitigating the risks can help put an insurer's mind at ease, take into consideration the costs involved as some mitigation strategies may be expensive.
Improve home security
Improving home security will also come at a cost. Installing security systems, deadlocks and security screens as well as safety systems like fire alarms or sprinklers can reduce risk. But these improvements may qualify you for discounts.
Consider before you buy
If you’re looking to buy a new home or are considering moving to a new area, do your research before you move. Just like it makes sense to review a building report, check to see what local factors may increase your premiums, such as flood or bush fire threats.
Be aware: taking out insurance on your new home is usually a condition of settlement for your home loan. You’ll need this in place before you're able to complete your home purchase. This will be another cost to add to the list when buying a property.
Ask about discounts
Loyalty may not pay, but it never hurts to ask before you switch. If you’re a 'good' customer, it’s worth checking to see if your insurer offers a no-claim discount.
If you’re a pensioner, or a member of a club or organisation, check what discounts may be available for you through those channels. Sometimes, all it takes is asking the question to receive a discount.
Review your cover
Property values can change, as can the contents of your home, so regularly check in on your policy to make sure you’re not over insured.
You can also check for savings by changing how you pay. If you can afford to pay your insurance upfront for the year, you could make substantial savings.
Tip: this can also help lock in your premiums if a price increase comes in during the year.
Bottom line
While home insurance may feel like a financial burden, it provides essential protection against unpredictable events.
By understanding the reasons behind rising costs and actively exploring ways to reduce your premiums, you can hopefully strike a balance between comprehensive coverage and affordability.
Time invested in researching and maintaining your policy will often pay off in savings, and you’ll still have peace of mind that your biggest asset is covered.
Go deeper:
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
