Personal Lines Pricing & Analytics Seminar 2018

Transcription

1 Personal Lines Pricing & Analytics Seminar 2018 Tuesday 22 May

2 Affordability of insurance for natural perils Stephen Lau 2

3 Objective for this presentation Assess the affordability of home insurance premiums in Australia, and how this varies by socio-economic group 3

4 Average cost of Home Insurance On average, the cost of Home and Contents insurance is equivalent to around 0.8 week of household disposable income: Average Premium $1,340* Average Weekly Household Disposable Income Average number of weeks income needed to pay insurance $1, *Source: Premium data from Insurance Statistics Australia for buildings and contents combined. The premium data excluded stamp duty and levies and these have been added back on an approximate basis

5 A house in Authurs Street, Ingham Would this be regarded as affordable? Property Field Property Information Flood ARI 20 Building area 193m 2 Maximum height 5.06m Elevation of GNAF 15.36m Eave height 2.99m Distance to river 1,464m Distance to coast 16,187m Insurer Combined Premium AAMI $6,286 Allianz No quote APIA $4,306 CGU $3,277 NRMA $3,655 QBE $4,269 RACQ $4,205 Suncorp $6,019 Westpac $5,256 5

6 A house in Authurs Street, Ingham How do the demographics affect the assessment of affordability? Number of Dwellings 100 Number of homes by Income Band in SA1 (Ingham) % - 20% 21% - 40% 41% - 60% SEIFA Bands 61% - 80% 81%+ Average Premium $4,659 Average Weekly Household Disposable Income Average time to pay insurance (weeks) $1, SEIFA Decile 2 6

7 How much is unaffordable? Indicators of financial stress It s personal: more challenging for lower SEIFAs 15% of homes in financial stress - Disposable income $1,067 pw - Spend $520 pa on home insurance - Difficult to increase spending beyond 1 week s earnings - Only around half own their own home Assumed definition of unaffordable: - 0%-20% SEIFA > 1.5 weeks - 20%-40% SEIFA > 2 weeks - 40%-60% SEIFA > 3 weeks Source: ABS Household Expenditure Survey

8 Approach High level view 1 Score every residential property with a non-perils cost and perils technical cost using finperils 2 Calibrate these premiums to market level premiums across Australia using Market Finesse 3 Defin d and ABS stats used for household income, socio-economic measures, profiles

9 Combined Home and Contents market premiums across Australia

10 Household Disposable Income across Australia

11 Household Disposable Income in Sydney

12 High level view of cost by SEIFA 0.35 Average Home Premium per $100 SI 2,500 Average Household Disposable Income 1.4 Premium to Disposable Income Ratio 0.3 2, , , to to to to to to to to to to to to Lower socioeconomic groups Higher socioeconomic groups

13 Number of weeks disposable income needed to cover home insurance 80% 70% 72% Profile of Australia Proportion of Properties 60% 50% 40% 30% 20% 10% 0% 22% 4% 1% 1% 0 to 1 1 to 2 2 to 3 3 to 4 4+ Number of Week's Household Disposable Income Required

14 High level view of cost by SEIFA Suggests affordability challenging for around 4% of population 100% 90% 80% Proportion of Houses 70% 60% 50% 40% 30% > 3 2 to to 2 < % 10% 0% 0%-20% 20%-40% 40%-60% 60%-80% >80% Lower socioeconomic SEIFA Tier Higher socioeconomic Copyright Finity groups Consulting Pty Ltd groups

15 Issue of affordability: underinsurance and noninsurance Various surveys suggest that around 5% of homes on average have no buildings insurance For high risk areas where natural disasters have occurred, it is discovered this is even higher Otherwise, to reduce premium these homeowners underinsure (by excluding flood risk, or deliberate quoting a lower sum insured)

16 Where are the unaffordable premiums located in Australia? Proportion of Unaffordable Dwellings 70% 60% 50% 40% 30% 20% 10% 0% Profile of Unaffordability NSW NT QLD SA TAS VIC WA Most of the unaffordable premiums are located in NSW and QLD

17 Impact of natural perils for unaffordable premiums 6,000 Average Premium 5,000 4,000 3,000 2,000 Premiums that are significantly unaffordable are most affected by flood and cyclone 1,000 0 < to 2 2 to 3 Number of weeks disposable income relative to Home premium Attritional Storm Earthquake Bushfire Cyclone Flood Taxes and Levies

18 Impact of natural perils for unaffordable premiums NSW QLD Average Premium 6,000 5,000 4,000 3,000 2,000 Average Premium 6,000 5,000 4,000 3,000 2,000 Unaffordability in NSW is largely affected by flood whereas QLD is largely affected by cyclone 1,000 1, to 2 2 to 3 > 3 Number of weeks disposable income relative to Home premium to 2 2 to 3 > 3 Number of weeks disposable income relative to Home premium

19 Future affordability issue: Impact of climate change

20 In summary Affordability may be challenging for 4% of insureds Mostly among lower socio economic groups May be a key driver of decisions to not insure, underinsure, or not insure for flood The two perils generating the highest premiums for individual homes (flood and cyclone) are biased towards lower socio economic groups this exacerbates the affordability challenge Copyright Finity Consulting Pty Ltd

21 Questions and comments? 21

22 Contact Stephen Lau Senior Consultant Tel: stephen.lau@finity.com.au

23 Distribution & Use This presentation has been prepared for the Finity Consulting Personal Lines Pricing & Analytics Seminar, held on 22 May It is not intended, nor necessarily suitable, for any other purpose. Third parties should recognise that the furnishing of this presentation is not a substitute for their own due diligence and should place no reliance on this presentation or the data contained herein which would result in the creation of any duty or liability by Finity to the third party. Reliance & Limitations Finity wishes it to be understood that the information presented at the Seminar is of a general nature and does not constitute actuarial advice or investment advice. While Finity has taken reasonable care in compiling the information presented, Finity does not warrant that the information provided is relevant to a particular reader s situation, specific objectives or needs. Finity does not have any responsibility to any attendee at the conference or to any other party arising from the content of this presentation. Before acting on any information provided by Finity in this presentation, readers should consider their own circumstances and their need for advice on the subject Finity would be pleased to assist.