Government intervention is increasingly likely in high-risk areas where home insurance is unaffordable, according to S&P Global Ratings.

The underinsurance crisis is deepening, with inflation and extreme weather losses pushing up premiums, analyst Angela Zhou says.

Tasmania’s proposal to create TasInsure, transferring risk from private insurers to taxpayers, is an example of government intervening in the market, she notes in a briefing on the home cover sector. 

“We see an increasing likelihood that the government will step in for high-risk areas that are unable to access affordable insurance through the private sector,” Ms Zhou said.

Insurers will continue to price for higher claim costs, to maintain sustainable profitability, but this will further erode affordability, she says.

Rising energy costs are increasing the pain and pushing up building expenses. 

“Higher replacement costs, which may be higher than the coverage amount, contribute to underinsurance,” Ms Zhou said.

“The impact of higher coverage values increases insurance premiums – on top of premium rate rises – and is compounded by government service tax and state-based insurance taxes.”