Insurance !

It is surprising how many Australian houses are uninsured.  When a city or a suburb is hit with a storm event we see news pictures of roofs ripped off and trees toppling onto buildings and the damage can run to hundreds of thousands of dollars.  That happens regularly - at least several times a year - and for the uninsured home owner it can be a catastrophic event.

Then there is the fire risk !  House fires are a daily event in most cities and we have well trained fire brigades to limit damage, but so often we see distraught families surveying the ruins and reporting that they have lost " everything " - and they were uninsured.

The concept of insurance began on China's silk road centuries ago.  Merchants taking their goods to western markets needed to cross wild rivers on their journey and it was common for a boat to capsize.  A merchant with all his goods in that one boat was ruined when they were lost and a clever elder devised a way to spread the loss.

Traders formed groups and spread their goods over a number of boats, hence if one boat capsized the loss was just a fraction of each persons goods and the loss was sustainable.  These journeys were also dangerous because of bandits and the idea spread to covering the lives of the traders.   They established a pool of money and if a trader was killed and his goods stolen that pool reimbursed his family for their loss.  It was the basis of " life insurance ".

Of course, to reduce the cost of that insurance cover to a reasonable amount the more people that contribute the lower the cost and that seems to be the problem we face today.  The fact that a vast number of homes are not insured elevates the premium the insured must pay - and that increases the proportion of homes that are not covered.

Now a new phenomenon is contributing to the increase in those uninsured.  In previous eras the value of the dwelling was far higher than the mere block of land on which it was situated.  The price bubble that has occurred with housing has reversed that trend and now the land beneath is usually worth many times the value of whatever is built above it.

The incentive to insure has evaporated.  In fact, older homes are being demolished to free the land for more modern structures hence the financial loss would be well covered by selling the land and buying elsewhere.  The need for insurance has shifted to covering the personal effects of the contents against fire or loss by storm damage.

Change has also encompassed life insurance.  In the days when few were covered by superannuation, people insured their lives to build a nest egg which they could negotiate for retirement money.  That was " assurance " rather than " insurance " because the policy guaranteed an ever increasing sum of money would be paid - on death or sooner if the policy was surrendered.   Consequently, the premium was higher than if it were just death cover for a nominated period.

Today, life insurance is more likely to be cover against death during a twelve month period with the rate of premium dictated by the persons age at the time of negotiating the policy.  It has little relation to retirement, which is now covered by compulsory superannuation legislation.

Sadly, it seems that the insurance industry is set to further retreat from the days when most homes were insured and life assurance was seen as a necessity for a comfortable retirement.   As more people are forced to embrace the rental market because of unaffordable house prices not keeping pace with lower pay levels the insurance of home contents takes greater importance.

Unfortunately, that also seems to be in decline !