Is your home and contents insurance a waste of money?

home insurance

Home and contents insurance policies are failing to protect people from increasingly common extreme weather events, a new report reveals.

The report was commissioned by several advocacy groups — including CHOICE, the Climate Council, Financial Counselling Australia, Financial Rights Legal Centre and the Tenants’ Union of NSW — and shows that the home and contents insurance market is largely ineffectual when responding to extreme weather events.

According to survey results, most policyholders are also struggling to afford greatly inflated premiums – if they can get approval for cover in the first place.

Due to climate change, environmental disasters such as floods and fires are becoming more common – and more intense.

More than 40 per cent of survey participants reported having experienced at least one extreme weather episode in the past five years.

CHOICE CEO Alan Kirkland says despite the increasing frequency of these events, insurers are not providing the protection customers believe they are paying for.

“Two in five respondents to our national survey of home and contents insurance policyholders reported that they had been impacted by extreme weather events in the past five years. But our research found that the insurance market is failing to cover these events fairly and affordably,” he says.

“Many people are being forced to pay higher premiums, reduce their cover or abandon insurance entirely.

 “We’re calling for coordinated action by governments and the insurance industry to ensure that people are effectively protected against the effects of extreme weather events. Home and contents insurance needs to be simpler, fairer and more affordable.”

The research reveals five major problems facing the home and contents insurance market.

First, the insurance products offered are too complex. Consumers find them difficult to compare across insurers, which often leads to people being unintentionally underinsured. 

Premiums have also risen to sometimes unsustainable levels. At their most recent renewal, 87 per cent of policyholders said their premiums were rising. Insurance affordability is worse in disaster-prone areas, and many households on low incomes have been priced out of the insurance market completely.

Many respondents said finding information on the level of risk to the home was very difficult, and the information that was available was piecemeal and often inaccurate, which can lead to customers not understanding the risk and ending up underinsured.

Customers are also finding that risk-mitigation measures they’ve undertaken to protect their homes are not taken into consideration by insurance companies when calculating premiums.

Forty-four per cent of policyholders said they would consider investing in measures to lower the cost of their premium, but many insurers do not recognise these kinds of measures when pricing policies – so they don’t bother.

Finally, survey respondents said there needs to be an option beyond regular insurance for people who live in high-risk areas. When homes are no longer insurable or safe to live in, governments need to plan for other solutions, including relocation.

How do we fix it?

The advocacy group is calling on the federal government to make home and contents insurance policies simpler, fairer and more affordable by standardising definitions and requiring insurers to proactively warn customers when they are underinsured.

They want an independent review of the affordability of home insurance, both now and into the future. Home insurance subsidies should be trialled in communities and geographic locations where insurance is unaffordable, particularly for people on low incomes. 

The group wants the government to provide funding to help people on low incomes make their homes more ‘insurable’, and amend residential tenancy laws so landlords have to make rented properties more resilient to climate risks.

Finally, the group says the federal government needs to adopt a large-scale national approach to planning for the relocation of communities at high risk of natural disasters.

“As the climate crisis worsens, more homes will be damaged or destroyed,” Mr Kirkland says.

“Insurance can play an important role in helping people to recover and rebuild their lives but unless governments and the industry accept the need for sweeping change, fewer and fewer people will have the benefit of insurance when they most need it.”

Have you received your home insurance renewal this year? Did your premiums go up? Let us know in the comments section below.

Also read: Has your car insurance gone up? Here’s what you can do

Written by Brad Lockyer

Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.

4 Comments

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  1. I live in Far North Queensland and I gave up being insured about eight years ago when the premiums rose to unaffordable levels. Few old age pensioners in Nth Qld remain insured as the annual premium for a modest house is around $5,000 and some companies will not insure people here at all.
    Which raises another issue, the budget insurance companies recommended by the ratings people like Mozo for their cheap premiums are the ones who refuse to insure people in risky areas. That makes these rating agencies guilty of misleading advice since they are not comparing like with like.
    Anyway the thing is we have been doing fine with no insurance cover and are way in front financially.

  2. It would help if insurance policy pricing made any sense. I live in a low risk area, my home can’t flood it’s built 20m higher than the lowest part of my property but my premium increased by 62% this year due to floods elsewhere. A few years back I asked why it increased so much and I was told it’s because of cyclones and floods. I said but I choose not to live in a cyclone or flood area, why am I paying for the people who choose to do so? Same the next year with fires and the next year with floods again. But then I asked if I increase the contents excess from $1000 to $5000 on $170,000, how much difference will that make? It almost halved the total premium. Go figure!
    However, if there is no incentive for people who deliberately choose to live in safer, lower risk areas then what’s the likelihood that we will ever resolve this sky-rocketing insurance cost?

  3. Is it worth insuring? The real question is can one afford NOT to insure?
    With all the fires caused by Lithium batteries and the number of vehicles that are crashing into people’s houses can you afford NOT to insure?
    Where would you be in those circumstances without insurance?
    We don’t have a Medicare type system to cover home and contents insurnce.

  4. I live in a Caravan Park in my own Parkhome (relocatable). Very few Insurance companies insure our homes. Recently Apia has also decided to not insure our homes anymore. Most of us in my street (14) are insured by this company. Finding a company that doesn’t charge the earth is almost impossible. We have to have home insurance by our contacts. These companies will insure a home, a caravan & a mobile home… but not a relocatable home. We are all pensioners and are battling.
    I hope the Govt does something fast.

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