The CEO of a major insurance broker network has said inflation was not the driver behind the recent surge in insurance premiums across Australia.
During an inquiry hearing on Oct. 9, members of a Senate Committee questioned Steadfast Group CEO Robert Kelly about the rise in insurance unaffordability since 2019, which was higher than the inflation growth.
In response, Kelly said that insurance costs in Australia have gone up since 2011 because of the impact of claims.
“It’s like a collection of money that you take in, and you spread over a whole lot of risks, and you hope to make a margin out of it,” he said.
“If the claims increase dramatically, then the base price of insurance has to go up accordingly.
“Inflation has nothing to do with it.”
The Council forecasted that the cost of extreme weather events would increase by 5 percent each year, reaching at least $35 billion annually by 2050.
The CEO further explained that insurance companies could not use inflation to determine whether to raise premiums.
“It [insurance price increase] is driven by the losses that the insurance company has to pay for the class of risk in the geography they operate in,” he said.
“And they [insurance companies] still struggle to make money.”
Another factor contributing to the insurance premium hikes was reinsurance costs–the cost of transferring risk to support the capital required to settle the claims.
Kelly noted that reinsurance costs had escalated dramatically over the last three years.
“You can’t compare inflation in any way, shape or form with the cost of insurance,” he said.
According to the most recent inflation data from the Australian Bureau of Statistics, insurance prices continued to grow strongly, rising 14 percent in the 12 months to the June quarter, down from 16.4 percent in the previous quarter.
Insurance Premiums and Brokers’ High Commission Fees
The Senate Committee also questioned Kelly about the high commissions charged by brokers for strata insurance policies, which caused premium prices to rise by as much as 40 percent in some cases, as shown in an independent review (pdf).The CEO agreed with the Committee that 40 percent was excessive.
“I think some people were charging fees and rebanking part of that fees to the strata manager that exceeded the commission that should have been done,” he said.
“I believe that is completely wrong and should never have been done.”
In addition, Kelly said he disagreed with the independent review’s proposal to set a 10 percent fixed commission rate for insurance premiums.
“The remuneration that was set was 20 percent commission—that commission has been unaltered for two decades, to my knowledge,” he said.
Kelly also noted that the proposed 10 percent was not realistic in some cases where procuring an insurance policy was difficult, such as in North Queensland, which was often heavily affected by natural disasters.
