In a recent speech at the National Press Club, Insurance Council of Australia (ICA) CEO Andrew Hall warned of a widening “protection gap” in the insurance market, posing a significant threat to Australians’ financial security.
Hall highlighted the challenges posed by increasing natural disasters, urbanisation, and global megatrends that are reshaping risk landscapes.
The protection gap refers to the growing disparity between potential economic losses and coverage provided by private insurance.
With the recent surge in extreme weather events, including the Black Summer bushfires and east coast floods, insurers are facing higher input costs, especially in obtaining global reinsurance.
Global reinsurers, traditionally partners in underwriting Australian risk, are reassessing their positions due to the escalating risks.
Australia, once viewed as a hedge against events in the northern hemisphere, is now experiencing significant increases in the cost of reinsurance. These higher costs are ultimately reflected in insurance premiums across the country.
The immediate consequence of this trend is a surge in underinsured or uninsured households, particularly in regions with high natural peril risk, such as cyclone and flood-prone areas.
A recent study by the Actuaries Institute estimated that over a million Australian households face home insurance affordability stress, with the most significant impact in regions vulnerable to cyclones and floods.
ICA’s Hall emphasised that the protection gap has serious implications. As more households and businesses reduce or forego insurance coverage due to rising premiums, the vulnerability of middle- and lower-income earners increases.
In the event of disasters, these groups face disproportionate upheavals in their lives.
Moreover, the protection gap places additional pressure on banks and the overall financial system, as extreme weather events in densely populated areas expose financial institutions to higher risks.
Governments may also bear a more substantial burden in funding community recovery costs, shifting the reliance from the private sector to taxpayers.
To address the growing protection gap, Hall called for collaboration between the insurance industry, governments at all levels, banks, and other stakeholders.
He emphasised the need for long-term, medium-term, and immediate actions to make insurance more affordable and accessible for Australians.
Hall particularly stressed the role of governments in reforming insurance taxes, considering them as a crucial factor in reducing premiums and narrowing the protection gap.
