Briefing: Affordability debate continues as risk, reinsurance and politics collide

By Jon Guy

The spectre of insurance affordability may well be rearing its head once again as new data from the other side of the world found that increasing numbers of homeowners are being priced out of cover.

Australia’s Actuaries Institute, the professional body representing actuaries in Australia, published a report at the end of August 2024, which found that rising home insurance premiums have caused the number of Australian households experiencing home insurance affordability stress to rise by 30% to 1.6 million in the past year.

The report’s lead author, Sharanjit Paddam, said there was a clear reason behind the rise.

He explained: “While insurance remains generally affordable for 85% of households, it’s concerning that there’s now 1.6 million households struggling to afford to insure their homes, up from 1.24 million a year ago.

“This is because increases in premiums are outpacing wage growth. Unfortunately, we expect this will continue because of the overall increasing risk of natural disasters associated with climate change, which will continue to put upward pressure on premiums.”

Mirrored in the UK

This report, entitled Home Insurance Affordability Update, should raise a few eyebrows in the UK – where the increase in the severity and frequency of major weather events continues.

Insurers remain the hands of their reinsurance capacity providers, which for a number of years now have been taking an ever more disciplined approach to natural peril risks.

With the market preparing to gather in Monaco later this month for the Rendez-Vous de Septembre conference, the costs of capacity will be high on the agenda – and it may well be that there will be more bad news for insurers.

The need to adopt higher attachment points and retain more of the risk will come at a cost, which will likely filter down to the policyholder.

However, this conversation comes at a time when the new Labour government will no doubt look to examine the costs of insurance and its affordability. It is on public record that Labour was keen to look at how motor premiums can be lowered, citing the growing financial burden for motorists.

The insurance industry is certainly braced for those discussions and if 2025 signals the need for home insurance premiums to be adjusted upwards to take into account the rising risks and the decreasing safety net provided by reinsurers, then motor is very unlikely to be the only policy under political scrutiny.

Indeed, at a time when Britain is being warned that things will get worse economically before they get better, we can expect the industry to remain under the political microscope for some time to come.