Insurance premiums set to rise in wake of NSW bushfires, but savvy businesses can dodge the worst of it

This month’s widespread bushfires in New South Wales are likely to end up costing all Australians more in insurance premiums, an expert has warned.

Mark Sherris, a professor of Actuarial Studies at UNSW’s Australian School of Business, tells SmartCompany insurance premiums for homes and businesses have been rising steadily across all Australia over the past few years, and tend to rise even more in areas prone to disaster.

“Businesses and houses in bushfire-prone areas will see an increase in premiums because of this, as has been the case in previous disasters,” he says.

“Insurance companies take losses in times of disasters like this. Some will be covered by their reinsurance, but quite a bit will go towards reducing their profitability. That tends to encourage them to look at their premiums across their business, especially with high-risk areas.”

Even areas not directly at risk have seen higher premiums, because insurance companies try to average losses among all policyholders.

But insurers can differ widely in how they assess risk, which means savvy small businesses can avoid large premium increases by shopping around for the best deal, Sherris adds.

“There are always other alternatives you can look at, through comparison sites or by trying to book a policy online, for example.

“Also, it’s worth looking at the excess on the policy. Often you can limit your costs by agreeing to bear small claims, where you bear the first part of the loss, and then the insurers come in only after a certain point. That can make insurance much cheaper. So it might be worth re-examining your excess.”

Insurance rates in Australia have tended to increase by 5-10%, a figure well above the rate of inflation. In disaster-prone areas, some homeowners and businesses see increases of 30% per year, as happened recently to places burnt down in the Tasmanian bushfires.

Insurers have received around 900 claims to a value of more than $100m in losses due to the bushfires sweeping across NSW, according to the Insurance Council of Australia. Many more claims are expected.

“Bushfires are a regular event in Australia major fires in the past producing significant losses of property,” Sherris says. “Although floods in recent years and other natural disasters, such as the Newcastle earthquake in 1989 and the Sydney Hailstorms in 1999 have been more substantial in terms of losses, bushfires are regular natural disaster events in Australia.”