Why is insurance in the north west so expensive?
Why are we paying higher premiums?
This is a question that I have been asked many times since moving to Broome. There are a few reasons why the North West is paying more, the main being the inclement weather and lack of Insurers willing to compete in this space. Currently we have three main Insurers that will look at a property risk above the 26th parallel and those Insurers base their rating structure (mainly) on the following factors:
- Type of risk (occupation/business)
- Construction of risk
- Previous claims history of owner
- Loss history for the area
- Reinsurance costs
What you may not be aware of, is that the Insurers have a backing agent called a Reinsurer. Essentially, the Reinsurer is the insurance companies "insurance company". The Reinsurer provides capital to the Insurer and once they have exceeded the claims costs that they have agreed on with the Reinsurer, the Reinsurer will pay the Insurer the remainder. For example, if an Insurer has a maximum limit payable of $2,000,000 on properties in Hay St and a claim occurs for $5,000,000 the Reinsurer(s) will pay the remainder of claims costs to the Insurer. The Reinsurer does not see Australia in states or areas but as "below and above the 26th parallel" (The 26th parallel south latitude is a circle of latitude that is 26 degrees south of the Earth's equatorial plane). This means that any claims in the North West - think of the recent claims in Queensland and the East Coast from cyclone Debbie that are likely to cost $2b - affect all towns above the 26th parallel. The Reinsurer provides a cost to the insurance company who in turn passes on some of this cost to the Insured.
Overall rate increases
Along with ongoing losses incurred by the Insurer this means that rates across the board are increasing (not just in the North West) but as we have incurred the highest percentage of losses to the Insurers; the premiums for the North West have increased comparatively more than the rest of Australia. We have noted that this year the renewal cycle has started to turn and all property risks have been increasing and this is a trend that is likely to continue until the Insurers have been able to recover some of their losses and return their portfolios back to a profitable and sustainable level.
Ensuring you're fully covered
Part of my role as a broker and client advocate is ensuring that my clients are not disadvantaged. We are continually in negotiations with Insurers to push them to understand the specific risks in Broome and surrounds and to determine a rating structure that is aligned with the actual risks that these areas face. Whilst costs are very important to your balance sheet, I would like to impart this last thought - would you prefer to be covered adequately or pay the cheapest premium? I have many people come to me in a time of great stress when they are fighting to get a claim paid out because they bought a policy online or went for the cheaper option without understanding the risks they actually needed covered. My preference is to discuss all the options with you and advise the relevant cover for your business and then you can decide with an educated mind what is best for you and your business.