Insurance Premium Hikes Not Caused by Inflation, Says Broker Network CEO
Steadfast Group CEO Robert Kelly stated that the recent increase in insurance prices was driven by a surge in insurance claims.
The CEO of a major insurance broker network affirmed that inflation was not the main factor behind the significant rise in insurance premiums throughout Australia.
During an inquiry hearing on Oct. 9, members of a Senate Committee interrogated Steadfast Group CEO Robert Kelly regarding the escalating unaffordability of insurance since 2019, surpassing the growth of inflation.
In response, Kelly explained that insurance costs in Australia have been on the rise since 2011 due to the impact of claims.
According to him, “It’s like a collection of money that you take in, and you spread over a whole lot of risks, and you hope to make a margin out of it.”
“If the claims increase dramatically, then the base price of insurance has to go up accordingly,” Kelly added. “Inflation has nothing to do with it.”
The Council forewarned that the cost of extreme weather events would see a 5 percent annual increase, reaching at least $35 billion annually by 2050.
Furthermore, Kelly elaborated that inflation could not be used by insurance companies to determine whether to hike premiums.
“It [insurance price increase] is driven by the losses that the insurance company has to pay for the class of risk in the geography they operate in,” he clarified. “And they [insurance companies] still struggle to make money.”
One of the factors contributing to the rise in insurance premiums was the escalating reinsurance costs— the expense of transferring risk to support the capital required to settle claims.
Kelly highlighted that reinsurance costs had surged dramatically over the past three years.
“You can’t compare inflation in any way, shape, or form with the cost of insurance,” he emphasized.
As per the latest inflation data from the Australian Bureau of Statistics, insurance prices continued to surge strongly, rising 14 percent in the 12 months to the June quarter.
Insurance Premiums and Brokers’ High Commission Fees
The Senate Committee also probed Kelly about the high commissions charged by brokers for strata insurance policies, leading to premium increases of up to 40 percent in certain cases, as indicated in an independent review (pdf).
Kelly concurred with the Committee that a 40 percent rise was excessive.
While it was common for strata managers to receive incentives from brokers when finalizing an insurance agreement, Kelly believed the amount should be reasonable.
“I think some people were charging fees and rebanking part of that fees to the strata manager that exceeded the commission that should have been done,” he stated. “I believe that is completely wrong and should never have been done.”
Additionally, Kelly disagreed with the independent review’s proposal to establish a fixed 10 percent commission rate for insurance premiums.
“The remuneration that was set was 20 percent commission—that commission has been unaltered for two decades, to my knowledge,” he pointed out.
Kelly also highlighted that the proposed 10 percent was not pragmatic in certain cases where obtaining an insurance policy was challenging, such as in North Queensland, frequently affected by natural disasters.
