Home insurance used to be very predictable. The bricks and mortar were covered against fire or storm damage, but any sort of flood damage could be a problem. Each insurance company seemed to have it's own interpretation of what was - and what was not covered - when water was involved. Many claims became areas of dispute over whether the damage was caused by a rising river level - or an exceptional downpour from the sky. One wasn't covered. The other was !
The premium charged for insurance cover depended on the type of dwelling involved. Once again, interpretations varied, but usually the insurer was more interested in the general locality as measured against claim history and most applications for cover were accepted within a general price range.
Few insurance companies are making much profit these days. We have had a string of storm calamities hitting across Australia and these involved big payouts. More to the point, the forecasters are sounding the alarm that global warming will deliver more bad insurance news with storm ferocity and frequency increasing, and rising sea levels damaging coastal properties. Now the insurance people are looking at risk on a street by street basis, and this new risk assessment is delivering a price shock to those at greater risk.
One Wollongong household has seen their insurance premium jump eight hundred percent - from $ 800 to a whopping $ 7200 for a full year's coverage. This property has never had a flood claim, but apparently the assessors have done their sums and see an expanding risk emerging.
It looks like insurance is going to creep out of reach for some householders and we are probably going to see an increase in the number of uninsured properties the next time there is a major weather event hitting this city. This reduces the very concept of how insurance works. By spreading the risk over a huge area the pool of premiums is large enough to cover damage that only affects a small pocket of the area covered. As the premium pool shrinks - the individual policy costs rise accordingly.
We are probably about to see the demise of " all risks " home insurance cover and it's replacement by " specific risk " policies that give home owners more control over premiums. Each property may have risk assessed according to it's location in regard to services, and provision of cover priced accordingly. Those seeking fire cover would get a lower premium if there is a fire station located nearby. Flood cover may only be economically possible for properties situated well above any likely flood level, but would be covered against a " cloud burst " situation. Householders would pick and choose the cover they desired, judged against the cost of individual event cover.
This is probably a natural progression of the insurance industry. Life insurance has already moved away from the past procedure of sending each applicant for life cover for a medical examination and requiring a depth of invasive questions to be answered. Cover is now available over the phone by the provision of age, sex - and smoker status. There is no medical examination, nor health questions asked. Cover is automatic from the day the first premium is paid.
If the imposition of a levy to fund the fire brigade is lifted from insurance premiums and collected more widely by it's inclusion as a separate item with council rates the average insurance premium for house and contents will fall sharply. The insurance industry must be hoping that this will cancel out the more elective use of risk analysis to to raise premiums - and result in the majority of people continuing to insure.
Property loss in a catastrophe is the worst financial setback that can happen to any family. Buying a home is the biggest financial transaction that most people ever make and it becomes the corner stone of their personal fortune. Insurance - at any cost - is the only way to protect that major asset in what is becoming a more dangerous world !
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