Rising insurance premiums !

The Financial Ombudsman reports that complaints about difficulties with insurance companies increased by thirty-five percent in the past year.  Many of these involved the ever rising price of premium renewals.

Unfortunately, many people lack an understanding of the complex nature of the insurance industry.   Like all other forms of business, it exists to make a profit - and to do that income must exceed the outgoing paid to settle claims.

It is a fact of life that the flooding that devastated parts of Europe this northern summer and the fires that burned down homes around Yosemite in the United States have a direct bearing on what your insurance company demands to insure your home and contents in Wollongong.

The " Never put all your eggs in the one basket " rule applies.   An insurance company that only insured locally could be wiped out if a major catastrophe occurred in that home area.  The insurance industry practices " Re-insurance ".
When the risk in one area gets too big, they spread the risk by buying cover for their risk from other companies across the world.    The bigger the risk, the more they " spread the load " !

That's how the insurance industry started - in China.   Merchants taking their goods to market on the " Silk Road " had rivers to cross.   If a boat overturned and lost it's cargo - that particular merchant was ruined.     Some wise sage devised a plan for a group of ten merchants to divide their cargo equally on ten boats.   The risk was then spread ten ways - and if one boat overturned all made a smaller - and sustainable - loss.

One of the reasons that insurance premiums are rising is the change happening in world weather.   Some blame it on global warming, but we are certainly getting more instances of wilder weather - and that means more damaging bush fires and more catastrophic floods.   We are now seeing the "Tornado" phenomenon appearing in Australia and at the same time the insurance industry is being forced by regulators to define and extend the definition of it's event coverage.    The industry can no longer hide behind the " fine print " in rejecting claims.

So - what does the future hold ?     Probably much more of the same.   It is possible that some form of basic insurance may be mandated by inclusion in council rates notices to even the playing field.   At present, many people do not insure and escape the taxes embedded in insurance premiums to partly pay for fire brigades and similar civic amenities.

At the same time, a total loss in a fire or flood leaves many uninsured destitute.  The sticking point is whether all should be forced to insure, thus lowering the overall risk - and consequently making premiums more affordable.

As Mother Nature continues to go on the rampage, insurance premiums are certain to keep right on rising !