Malcolm’s home cover is up 47% despite rarely lodging a claim. Are Australia’s insurers out of control?

Malcolm Chew's 10-acre property in the Hawkesbury district is so high above sea level that most of Sydney would need to be underwater before flood posed a threat.

To protect against fire, the NSW home is fitted with toughened glass and a sprinkler system that goes under the eaves. There is a 120,000 litre water tank, with fire-fighting pump, that can draw water from a spring-fed creek.

But none of those precautions was taken into account by the Chew family's long-term home insurer when it sent the 69-year-old and his wife a renewal letter with a 47.5% premium increase. The new policy would cost more than $6,600 a year.

When Chew, who has lived at the property for 34 years and has never claimed anything more substantial than damage from an electrical storm, contacted his insurer, he was told an assortment of costs including government charges, inflation and building materials had been factored in.

"They also said claims in the area have been taken into account but couldn't elaborate on what that meant," says Chew.

He says the insurer provided no clarity other than to say the equipment and home modifications would not reduce the premium.

"Their words to me were 'it makes no difference but we appreciate the effort that you go to'."

Australia is grappling with an insurance crisis , leaving many households either unwilling or unable to insure their homes, with those in and around areas prone to natural disasters the most affected.

's breaking news email

The insurance industry has defended its pricing decisions, arguing that extreme weather and high costs of labour and building replacement make large increases necessary.

The effects of climate change are also weighing heavily on prices charged by reinsurers, which take on some of the risk of natural disasters, ultimately passed to policyholders.

But homeowners are frustrated by the lack of transparency in premium calculations and the little regard many insurers seem to have for efforts they've made to safeguard their properties.

The frustration is magnified by the expanded profit margins most major insurers are generating. IAG's insurance margins jumped from 9.6% to 15.6% over the past 12 months, according to its annual report, marking its highest level since 2018-19.

The fatter margins have put insurers on a hot share-price run at the same time many of their own policyholders are struggling.

Chew says he has started moving some of his policies to rival insurers to find better prices.

"They say thanks for your loyalty but then shove up the premium by 47%," he says.

"We've taken a couple of policies off them, and I've found better prices. My advice is don't give your insurer any loyalty because you are not getting any from them."

The insurance sector, largely overlooked as a cause of cost-of-living pressures, has been a standout contributor to inflation over an extended period, representing annual price increases not seen in decades.

The Greens senator Mehreen Faruqi, who is chairing an inquiry into the impact of climate change on insurance premiums, said that while the climate crisis was adding to insurance costs, that should not give insurers cover to gouge communities.

"People struggling with the skyrocketing costs of insurance, at a bare minimum, deserve to know clearly and transparently what insurance coverage they have and how their premiums are calculated."

The committee's next public hearing is scheduled in Sydney on Friday, which includes appearances from the corporate, prudential and competition regulators.

The Insurance Council of Australia says in its submission to the inquiry that extreme weather events, increasing home values in high-risk areas, high inflation and rising reinsurance premiums were all weighing on prices.

The representative body cited research that found global insured losses from natural catastrophes exceeded $100bn for four consecutive years, as extreme weather events "such as storms, flooding and wildfire" become more intense, pushing up costs.

IAG says in its submission that government agencies needed to get more involved to coordinate "climate adaptation and resilience measures".

Insurance relies on pooling mechanisms – that means all policyholders tend to pay more after a spate of disasters, even when their individual assets aren't affected. Prices go up disproportionately for those in and around areas prone to natural disasters.

Prof Paula Jarzabkowski, from the University of Queensland, says there is room for the sector to better take into account the risk profile of individual properties.

"We need to start understanding what things will genuinely make a difference to your risk profile and your likelihood to cause a claim," says Jarzabkowski, who specialises in addressing insurance protection gaps.

"We're not in that space yet."

One property owner in the Byron area saw his premiums jump 135% to almost $200 a fortnight in two years, even after switching insurers.

The house is raised, and was unaffected by past floods in the area, although the owner has previously made a claim to clean up mould in the house's interior.

"The broker has told me to expect another increase at 12 months," says the owner, who asked not to be identified.

"I asked the reason. [The broker] shrugged, rolled her eyes and said the insurance companies are out of control."