Bigger houses call for higher premiums, Suncorp says. Photo: Brendan Esposito
Suncorp is planning a "high single digit" increase in home insurance premiums this year, citing higher reinsurance costs and the fact Australians have the biggest houses in the world.
The country's biggest home insurer, which owns GIO and AAMI, outlined the planned increase on Wednesday after unveiling a 79 per cent rise in profits from its general insurance arm.
Although the rise is slower than the near-15 per cent annual increases of recent years, it underlines the surging cost of home insurance.
Chief executive Patrick Snowball justified the increase by saying insurers were facing higher costs from reinsurance – premiums charged to local underwriters – after a recent spate of natural disasters.
He also said the full cost of insuring large Australian homes was not yet reflected in premiums.
"Australia has the biggest houses in the world, and they are located in some of the highest risk-areas of the world," Mr Snowball said.
"Increasingly, we are seeing a high level of under-insurance both on the premises themselves and more importantly the contents, and this is something we need to reflect in the premiums we charge."
He said the rebuilding after the Queensland floods of 2011 had underscored the high cost of Australian homes, which were larger than those in other countries thanks to urban sprawl.
"We were extremely surprised at the cost of rebuilding those houses compared with what we thought it was going to cost five years previously."
He also said that although standards of living had accelerated, insurance costs have not kept up.
"Over the last five years, where people had one television they've now got seven, where they had one car they've now got two cars," he said.
Suncorp and IAG control more than 50 per cent of the home insurance market, according to estimates from Nomura analyst Toby Langley.
Mr Langley said home insurance costs had been pushed up by a spate of floods, cyclones and other natural disasters in recent years.
"The impact of higher-catastrophe experience since 2007, combined with rising reinsurance costs, means that home insurance premiums inevitably had to rise if the insurers were to continue offering secure cover for homeowners on a viable basis," he said.
Mr Snowball said that while average premiums had risen, they had also fallen significantly in some flood-affected areas of Queensland after local authorities built levies and more residents were encouraged to move away from flood plains.
But some experts say the market dominance of Suncorp and IAG allows them too easily to push up prices.
Analyst at CLSA, Jan van der Schalk, said the concentrated nature of the market gave IAG and Suncorp considerable scope to increase prices and boost their bottom lines.
Despite the rises, he said insurance profits tended to rise in anticipation of increased claims, and prices were likely to fall in two to three years.
"They're definitely earning more than they should be right now, but is that because they've gouged the community? That's a big call to make at this point," Mr van der Schalk said.