Why premiums change
Premiums start from the expected cost of claims, then add the cost of running an insurer and holding capital. This page sets out each driver and the evidence reported by regulators and industry bodies.
The pricing framework
Expected claims How often claims occur and what they cost + Expenses Operating costs and commissions + Risk and capital loading Reinsurance and a margin for profit or return on capital = Technical premium The actuarially calculated price
The technical premium is the expected cost of supplying the insurance, with a margin for profit or return on capital. Its components are expected claims, reinsurance, operating costs (administration, marketing and claims handling), commissions and the margin (ACCC 2020, 60–61). Insurers split expected claims into working claims, such as theft, glass and water damage, and natural peril claims, and generally model each peril separately (ACCC 2020, 62).
Insurers then make premium adjustments for competitive or market positioning, or to manage their exposure. These adjustments are not directly related to the risk of the property. Discounts (such as for loyalty, online purchase or no-claims), surcharges (such as for paying monthly), taxes, duties and levies are applied last, giving the retail premium (ACCC 2020, 60–61).
Six drivers
01
Rebuilding, repair, labour, materials, vehicle parts and replacement values. These determine the cost of each claim.
Evidence. ABS prices for new dwellings rose 41.3% and for vehicle maintenance and repair 27.4% over the five years to the September quarter 2026. Insurers told the ACCC that building material and labour cost inflation contributes to high premiums (ACCC 2025). The ACCC’s final report found claims cost inflation is pushing premiums higher across Australia (ACCC 2026).
02
Floods, bushfires, cyclones and storms, and how insurers assess hazard, exposure and vulnerability at each location.
Evidence. The 2022 flood events produced $7.17 billion in insured losses from more than 300,000 claims (Insurance Council of Australia 2023). How disasters affect premiums
03
Insurers transfer part of their catastrophe risk to reinsurers. The cost of reinsurance is part of the premium.
Evidence. After the cyclone reinsurance pool lowered reinsurance costs, average home insurance premiums per $100,000 sum insured in higher cyclone risk areas fell 11% in the first year. In areas with no cyclone risk they rose 6%. After up to two years they were 14% below pre-pool levels (ACCC 2026). The Actuaries Institute found that home insurance premium increases in the year to March 2024 were primarily a consequence of higher reinsurance costs during 2023 (Actuaries Institute 2024).
04
Administration, marketing, claims handling, commissions and the return required on the capital insurers must hold.
Evidence. The cost of capital is part of the cost of insurance. Insurers also pay expenses, commissions, taxes and levies, and often pass these costs on to policyholders (Huang 2024).
05
Market conditions, the insurance cycle, customer behaviour and practices such as price optimisation.
Evidence. 31% of car insurance customers who contacted their insurer at renewal obtained a lower premium for the same cover (ASIC 2026). Price optimisation is legal in Australia (Huang 2024).
06
The data and models insurers use to estimate each customer’s risk, including AI and big data.
Evidence. The ACCC found that better access to data, and more sophisticated analysis of it, has enabled insurers in northern Australia to price risk at an individual address level, not at a postcode or regional level, particularly for cyclone and flood risk. This has resulted in very large premium increases for some customers, while lower-risk customers may have seen reductions (ACCC 2020, ix). More individualised pricing can lead to higher premiums for properties with higher risk levels (Huang 2024).
The evidence
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Disasters and climate