A business owner in Queensland receives their insurance renewal notice. The property insurance premium has jumped by 20%. They stare at the figure, unsure how they’ll cover the cost. Meanwhile, across the world in Los Angeles, wildfires have devastated entire neighbourhoods. You might wonder—what’s the connection? Surprisingly, disasters in far-off places often hit close to home, especially when it comes to insurance.

 


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Insurance is a safety net, but lately, it feels like the holes are getting bigger. Global disasters like the LA wildfires cause billions of dollars in losses. Insurers pass some of these costs to reinsurers, companies that provide “insurance for insurers.” When reinsurers face higher payouts, they raise their prices. Australian insurers then absorb those costs and, in turn, increase premiums for businesses and homeowners here. The challenge lies in balancing these external pressures with the local need for fair and sustainable premiums.

 

The Ripple Effect of Global Disasters on Property Insurance Premium

 

Take the Californian wildfires, which are now among the costliest disasters in US history, with damages exceeding AUD 32 billion. Events like these put immense pressure on the global reinsurance market. Reinsurers—already grappling with the highest costs in two decades—adjust their pricing to cover increased risks. This directly flows into the premiums Australian insurers pay for reinsurance, leaving them with little choice but to pass some of these costs onto their customers.

 

Yet, the Australian market brings its own challenges. With recurring floods, cyclones, and bushfires, insurers must navigate a complex landscape of rising claims and heightened regulatory expectations. Unlike in the US, where some insurers pull out of high-risk markets altogether, Australian insurers are expected to maintain coverage. The question is, how can this be done without alienating policyholders or creating a deeper protection gap?

 

 

Damage to Property and Protection Gap Challenge in Australia

 

The protection gap—the difference between insured losses and actual economic losses—continues to widen in Australia. According to the Actuaries Institute, nearly 15% of households face extreme insurance stress, with many unable to afford full coverage or property insurance premiums. For businesses, the situation is just as dire.

 

Consider a hypothetical case of a family-owned motel in North Queensland. After repeated cyclones, the business faces a 40% increase in property insurance premiums. Despite never making a claim, the owners feel penalised by their postcode. Yet, as insurers know, the data doesn’t lie. Increased risk in the area necessitates higher premiums, but explaining this to policyholders remains a challenge.

 

 

Breaking Common Assumptions about Insurance and Reinsurance Providers

 

A common misconception among the public is that property insurance premium increases reflect greed rather than necessity. Insurers often find themselves battling this narrative. The truth is that pricing reflects both the frequency and severity of claims, as well as reinsurance costs that are largely outside local control.

 

Another mistaken belief is that insurers fail to innovate in addressing these risks. While the industry works tirelessly to create sustainable solutions, these efforts often go unnoticed. For instance, insurers offering discounts for flood-resistant building upgrades may find limited uptake among policyholders, who often focus on immediate costs rather than long-term savings.

 

 

Solutions for a Resilient Premium Property Insurance Policy

 

Australian insurers and reinsurers play a critical role in shaping fair and sustainable pricing. Transparency, collaboration, and innovation are key. Customers need clear communication about why premiums rise and how they can reduce their risks. Tailored products, such as microinsurance or catastrophe-linked savings accounts, can also offer flexible solutions for vulnerable households.

 

Reinsurers, meanwhile, must work with insurers to develop models that account for both local and global risks. Sharing data, leveraging AI tools, and refining catastrophe modelling can help improve risk assessment and pricing accuracy.

 

Government initiatives, such as the AUD 10 billion cyclone and flood reinsurance pool, are a step in the right direction. However, insurers must advocate for policies that support broader resilience efforts, such as stricter building codes and better land-use planning. By investing in prevention, insurers reduce claims and help customers feel more secure in their coverage.

 

 

Steps for Home and Commercial Property Insurance Providers in Australia

 

Enhance Communication: Provide clear explanations about premium calculations and reinsurance impacts. Use customer-friendly language to build trust.

Promote Resilience: Reward risk-reducing behaviour, such as installing flood barriers or upgrading to fire-resistant materials.

Leverage Technology: Invest in AI-driven pricing models to improve risk assessments and offer tailored solutions.

Collaborate with Stakeholders: Work with governments, reinsurers, and communities to create comprehensive disaster mitigation strategies.

Educate Policyholders: Launch awareness campaigns to help customers understand the value of adequate coverage and the shared nature of insurance.

 


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Shaping a Sustainable Property Insurance Premium

 

Insurers and reinsurers operate at the crossroads of local and global challenges. Balancing profitability with fairness is not easy, but it’s necessary. The interconnected nature of today’s risks means that what happens abroad will continue to affect Australian premiums. A collaborative, forward-thinking approach is crucial to maintaining trust and ensuring sustainable growth. 

 

As professionals in this space, you have the tools and insights to lead this change. If this resonates with you, let’s keep the conversation going. Reach out to discuss your challenges, share ideas, or explore strategies that suit your needs. Together, we can navigate these changes and build a stronger, more sustainable future.

 


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Are you a business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?

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