Will insurance premiums go up in 2025?
The last couple of years have been rough. Inflation has hit everything from vegetables to Vegemite, while mortgage and rent rises are squeezing Aussies for every penny.
But in the background to many of us, the cost of insurance blew up something crazy in the last year. In fact, the price of insurance went up more than any other group of goods or services that the ABS tracks, up 14% year on year.
| ABS Inflation Index | Annual % Change |
|---|---|
| Insurance | 14.0% |
| Tobacco | 12.2% |
| Eggs | 10.7% |
| Lamb and goat | 9.6% |
| Vegetables | 8.9% |
| Oils and fats | 8.5% |
| Audio, visual, media & services | 8.4% |
| Fruit | 8.0% |
| International holiday travel | 7.9% |
| Domestic holiday travel | 7.3% |
| Rents | 6.7% |
| Tertiary education | 6.6% |
| Sports participation | 6.5% |
| Hairdressing & grooming | 6.3% |
| Preschool & primary education | 6.1% |
Source: Monthly Consumer Price Index Indicator, October 2024 | Australian Bureau of Statistics
Why have insurance premiums risen so much?
Insurance premiums are moved by many of the same things affecting the price of groceries, fuel or mortgage repayments. We're in a high inflation environment, so things are getting more expensive.
Because insurance typically pays the cost of other things in the world, be it fixing a car, rebuilding a house, paying for health care or a funeral, the cost of insurance premiums will generally go up in line with the overall inflation rate.
But 14% is way higher than inflation. So what's going on?
The hidden costs of underwriting insurance
There are some forces that are unique to insurance companies, mostly to do with risk management.
Insurance customers who are more likely to claim are what's known as 'higher risk', and will have higher premiums as a result. Thing is, if the entire pool of customers gets riskier, then all premiums rise.
Unfortunately, this is happening across multiple insurance categories.
- Ageing population? Health insurance is going to be more expensive.
- More extreme storms? Up goes home insurance premiums.
- Increasing car repair costs? Up goes your car insurance.
And there's a vicious cycle here too. With higher premiums overall, many low risk customers will cancel their cover. But by reducing the number of low risk customers in the overall insured population, that increases the overall risk profile.
And we know what that means. Yep, higher premiums.
An industry wide phenomenon
Just like 'No man is an Island', it seems like no side of the insurance industry is safe from the impacts of the other.
As the Insurance Council of Australia explains, things are connected whether we like it or not.
Wherever you live in Australia - whether you're exposed to extreme weather or not – there is upward pressure being put on insurance premiums. This is because of the escalating costs of natural disasters, the increasing value of homes and vehicles making them more expensive to repair or replace, inflation pushing up repair costs, workforce and material shortages across industries, and the increasing cost of doing business for insurers. "
So, will premiums keep going up in 2025?
Let's isolate each of the factors we've talked about to see if they're likely to keep impacting the price of insurance.
Inflation: If inflation keeps going up, the cost to insure people will keep going up. This could feasibly happen this year, but it won't be a quick turnaround. We have seen global inflation start to drop, but there are a lot of things that could revert that trend.
Ageing population: Sorry, this one is a long term problem. Medical technology is getting better, which keeps us alive - and claiming on our health insurance - longer. That's obviously a good thing, but it means the cost of medical care and health insurance will keep with our median age. What would help is if the government reformed private health insurance to get more young people insured, lowering the risk profile. But that's a big problem to solve.
Extreme weather: If climate change keeps causing more extreme weather events, the cost of providing home insurance will keep increasing. Unfortunately, the last 50 years of climate activism has not been especially effective. Again, government regulation of the sector is likely the only thing that might cap increases.
In all likelihood, insurance premiums will keep going up in 2025. If we really have passed peak inflation, then hopefully premiums will move a bit less than last year. Fingers crossed!
Getting your house in order and save
Neither inflation, climate nor the inevitable passage of time can be affected by the hands of any one of us. Well, there are still ways to save yourself some cash. Here are a few tips on how you can still save on insurance, even with prices going up overall.
- Review your cover: Do you actually know what you're covered for? You should check your insurance policies each year at least to make sure they still match your needs. Sometimes you'll be able to downgrade your cover and save some money.
- Increase your excess: Lifting your excess will help moderate the cost of your insurance premiums. Of course it will be more expensive to access your cover if you do need it. Be sure to consider your risk of making a claim before you do.
- Lower your risk: Many insurers will lower your premium if you take steps to lower your risk. For example, your home and contents policy might be cheaper if you install security devices. Or, maybe quit smoking and safe on your life insurance? And on cigarettes...
- Compare your options: Is it obvious? A little cliche? Yeah maybe - but comparing is one of the best ways to save money on insurance. All insurers calculate risk differently, so the risk with your current provider could very well be different from another. Don't take my word for it - most insurance experts agree.