Looking forward to a new year, there is hope that 2025 will be less turbulent and more predictable. Reflecting on the past year, we’ve seen the following trends in the market…
So, what should we expect in 2025?
Premium stability
As inflation stabilises, so too will rate changes and average premiums in 2025. The market correction in recent years with material increases in premium rates has achieved rate adequacy for most insurers.
It is anticipated that rate changes will be lower and there is the potential for reductions. This is particularly the case for desirable risks that are well maintained and in locations rarely exposed to weather events like cyclones and floods. Some residential policies with a good risk profile are currently being renewed at the same rate or at a reduced rate compared to last year.
Properties with defects and a poor claims experience will continue to experience larger premium increases and imposed higher excesses. However, if you have undertaken defect rectification or risk mitigation, remember to provide details of the changes well in advance of renewal so we can work with insurers to obtain the best terms for your property.
Reduced inflation of construction costs
Inflation has been very high in the construction industry post COVID-19 and with the increased frequency of natural disasters. Construction cost inflation is expected to ease slightly in 2025, and this will have a positive impact on controlling claims costs and steadying premiums.
A recent article on building costs in Domain1 noted that:
“…massive price rises for building materials appear to be in the rearview mirror for now as new data shows costs in the past year have slowed to single-digit growth for all products.”
Tackling underinsurance
In the past few years, sums insured have not kept pace with the CPI or construction cost inflation. Underinsurance is also a knock-on effect during a period of premium increases. Often owners elect to keep the sum insured down to control premiums. Many insurers have noted a decline in sum insured changes and fewer valuations being submitted to support a sum insured increase.
Strata legislation clearly places the onus on the owners corporation / body corporate to insure the property for the full reinstatement or replacement value. If a strata property has not been valued in the last three years, it is likely to be underinsured. The liability for any shortfall in insurance cover in the event of a total loss rests with the individual owners. It is worth reminding owners of this responsibility and to engage a qualified professional to value the property and adjust the sum insured.
Dealing with extreme weather
The ICA annual Insurance Catastrophe Resilience Report2 shows that the impact of extreme weather on the Australian economy has tripled over the past three decades. It also highlighted the need for a greater focus on risk mitigation, preparedness and building resilience to manage the impact.
The Cyclone Reinsurance Pool and addressing affordability
In 2022, the Cyclone Reinsurance Pool (CRP) was implemented to reduce insurance premiums in high cyclone risk areas. The CRP is managed by the Australian Reinsurance Pool Corporation (ARPC) and is mandatory for Australian insurers. Since its launch, it has had a positive impact for strata properties in high cyclone risk locations.
In September 2024, the ACCC released its third insurance monitoring report. It acknowledged that the cyclone pool has resulted in some cost savings for insurers and consumers. The report highlighted that 16% of strata policies in medium to high cyclone risk areas experienced a reduction in the rate of premium increase and received a premium decrease upon renewal after their insurer had joined the cyclone pool.
The CRP’s upcoming 2025 review presents an opportunity for further refinements to its structure, potentially extending coverage periods or adjusting premium formulae to address current challenges in premium savings and coverage adequacy. This includes introducing discounts for buildings that have undertaken certain cyclone mitigation activities from 2025.
Emerging risks
Two emerging risks in strata are:
- Fires caused by lithium-ion batteries, and
- Tobacconists being firebombed
The presence of tobacconists in commercial and mixed-use strata is seriously impacting insurance availability and premiums. Due to a rise in arson attacks linked to organised crime gangs, local insurers are now reluctant to cover properties with tobacco shops, forcing body corporates to turn to more expensive international special risk policies. Please read our articles on the emerging risks of lithium-ion batteries and tobacconists.
Disclosure
Full disclosure and evidence of a proactive approach to managing defects and maintenance is what insurers are looking for when underwriting a property. A few tips include:
- Disclosing all defects, claims and any rectification or capital works being carried out
- Updating building information and sum insured where improvements or renovations have been completed
- Evidence of a regular maintenance program to keep the building in good repair
- Ensuring that all safety checks are performed when due
- Undertaking a valuation by a qualified professional every three years at a minimum to avoid underinsurance
This practice will help to avoid issues and delays in obtaining quotes during the renewal process and at time of a claim.
Our article on Mastering Strata Insurance has some helpful tips to ensure a smooth transition through the underwriting process.
Achieving the best strata insurance outcome
As a broker, our recommendation will not always be based on price. When comparing quotes and policies, it is important to consider the product inclusions, excesses / deductibles, exclusions and cover limits for each insurer. Please contact your Whitbread insurance broker if you would like to know more about the strata market or to discuss a particular risk in greater detail.
T: 1300 424 627
E: info@whitbread.com.au
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