Fee Models Emerge as Solution to Cyclone Insurance Affordability Concerns

0

Despite the establishment of the reinsurance pool in July 2022, which aimed to lower premiums in cyclone-prone areas, many consumers and businesses continue to face financial strain. The ACCC's report indicates that while large strata buildings have benefitted significantly, with premium reductions reaching up to 73%, overall savings for most customers have fallen short of expectations.

On average, strata premiums in medium- to high-risk cyclone areas have decreased by 7%, slightly trailing the 11% reduction in home and contents premiums in similar regions. This disparity underscores the financial burden still experienced by property owners, particularly in northern Australia, where the availability and competition in strata insurance remain critical issues.

The ACCC review also emphasises the role commissions play in inflating costs. With commission costs contributing to 15%-17% of average strata policy expenses in 2023-24, additional fees imposed by brokers and strata managers further augment the final amounts paid by consumers. This has led brokers to consider fee-for-service models to alleviate the financial pressure on clients in high-risk zones.

The National Insurance Brokers Association (NIBA) defends the indispensable role of brokers, especially in cyclone regions, where obtaining adequate insurance protection poses significant challenges. Brokers offer valuable expertise and advocacy required to navigate the limited and costly insurance options.

Additionally, small business insurance in northern Australia is highly intermediated, with commission costs making up 19% of the average SME policy expense, compared to 14% in other areas. While NIBA acknowledges the necessity to tackle insurance costs, it also expresses disappointment that the ACCC review does not address the impact of insurance-based taxes, which further diminish affordability.

NIBA advocates for a focus on reducing underlying risks as the most effective method to sustainably lower premiums. They continue to support initiatives that target the root causes of affordability challenges, thereby enhancing the resilience of communities most vulnerable to extreme weather events.

As brokers explore fee-based models, the insurance sector may witness notable shifts in how services are rendered, aiming to provide more equitable solutions for those in cyclone-affected areas. Moving forward, the industry remains committed to finding viable strategies to enhance the affordability and accessibility of essential insurance coverage.

Published:Friday, 25th Jul 2025
Source: Paige Estritori

Share this news item:

Insurance News

Clear

Reviving Australia's Troubled Insurance Industry: Opportunities and Challenges 30 Jul 2025: Paige Estritori Australia's retail life insurance sector is facing significant challenges despite generating approximately $9.4 billion in annual premiums. Upon closer examination, it's evident that this industry is under strain. Growth is primarily driven by price increases rather than the addition of new clients, signalling concerns for long-term sustainability. New business growth hovers around 8-9% annually, not enough to adequately bolster the sector. - read more

NSW Government Warns of Financial Impact from Stall in Workers' Compensation Reform 29 Jul 2025: Paige Estritori The New South Wales government has issued a stark warning regarding potential financial consequences if proposed reforms to workplace mental injury laws are delayed further. As an upper house committee gathers to discuss these changes, Treasurer Daniel Mookhey highlights the urgency, stating that setbacks will result in increased premiums. - read more

AFCA Rejects Traveller's Insurer Claim for Alternative Flight Costs 25 Jul 2025: Paige Estritori An Australian travel insurance policyholder faced disappointment as the Australian Financial Complaints Authority (AFCA) denied their claim for reimbursement of costs incurred due to changing travel plans amid threats of a pilot strike. The traveller, who rearranged his flights from Sydney to Vancouver and subsequently to Toronto, had hoped his insurer, AIG Australia, would cover the $5,576 expenses for the rebooked flights and additional accommodation. - read more

Fee Models Emerge as Solution to Cyclone Insurance Affordability Concerns 25 Jul 2025: Paige Estritori The affordability of cyclone insurance in Australia’s high-risk zones remains a pressing issue, prompting some brokers to shift towards fee-based models. This change is highlighted in the latest annual review of the cyclone reinsurance pool from the Australian Competition and Consumer Commission (ACCC). - read more

Homeowner's Storm Damage Claim Denied; Faulty Construction Cited 24 Jul 2025: Paige Estritori A homeowner's attempt to secure a storm damage insurance payout has been thwarted after an investigation revealed that the damage was due to poor maintenance and faulty construction, rather than extreme weather conditions. The initial claim attributed the damage on the property's western wall and roof eaves to significant rainfall, citing a substantial 141mm in July, with a notable record of 43.6mm in a single day. - read more

NSW Workers’ Compensation Scheme Faces Major Overhaul Amid Underinsurance Issues 23 Jul 2025: Paige Estritori The New South Wales State Insurance Regulatory Authority (SIRA) has identified critical issues of underinsurance and employer non-compliance within the icare workers’ compensation scheme. A recent review highlighted that over $60 million in premiums were not collected due to missing wage declarations, with about 75% of employers audited showing non-compliance responsible for an additional $24.5 million in unpaid premiums. - read more