Insurance cost surge could trigger interest rate hike, expert warns

A leading insurance expert has cautioned that soaring insurance premiums could push the Reserve Bank of Australia (RBA) towards a cash rate increase in August.

Marty Sadlier, director at MCG Quantity Surveyors, described the relentless rise in insurance costs as an “inflation villain” that could lead to higher interest rates for all Australians this year.

“If government is serious about stemming inflation, then it’s time they step in and address the insurance crisis,” Sadlier said.

The Australian Bureau of Statistics’ latest Monthly Consumer Price Index Indicator shows Consumer Price Index (CPI) rose 4.0 per cent in the 12 months to May 2024.

A closer look at the data reveals insurance premiums increased by 14.0 per cent during that period – the highest percentage gain across all expenditure classes in the analysis.

Sadlier highlighted that this marks insurance as a significant and disproportionate contributor to inflationary pressures.

“Premiums are, quite frankly, out of control,” he said.

The impact of rising insurance costs extends beyond policyholders, affecting businesses and communities nationwide, according to Sadlier.

He noted that high insurance costs are forcing businesses to reduce spending and staffing levels, with some closing their doors altogether.

“This includes community facilities – small businesses such as restaurants, cafes, grocers, gymnasiums and many other operations that make up the fabric of our suburbs,” Sadlier explained.

The ripple effect also includes reduced disposable income for households and decreased construction activity, exacerbating the current accommodation crisis.

Sadlier called for immediate regulation of the insurance industry as part of a multi-pronged solution to address explosive insurance premiums.

“It’s crucial government step in and stop insurers from quoting outrageous premiums that are decimating businesses, driving inflation and leaving Australians at risk of going broke,” he said.

He also advised property owners to ensure they are accurately insuring their properties and recommended the use of insurance brokers to secure competitive premiums and understand policy details.

Sadlier warned that some property owners are choosing not to insure their premises due to high premiums, while others are being refused cover altogether, leaving them exposed to significant financial risk.

The insurance expert emphasized that addressing this issue is crucial not only for individual policyholders but for the broader economy, as it could help mitigate inflationary pressures and potentially avoid an interest rate hike.