In 2025, premium prices in the Australian insurance market are being impacted by extreme weather events, notably flooding, inflation, labour and building costs as well as Australian government taxes, such as stamp duty and other levies.
According to the Insurance Council of Australia, insurer profits are lower than state taxes, with the government collecting AUD $8.9+ billion in the 2024/2025 financial year, compared with AUD $7.2 billion in combined insurer profits.
With global natural catastrophe losses growing 5-7% annually, the Insurance Council has proposed an AUD $30.15 billion Flood Defence Fund over 10 years, jointly funded by federal and state governments, to mitigate flood risk in Australia’s most vulnerable areas.
Industry snapshot
- 86 million general insurance policies written in Australia.
- 29% higher cost of repairing and rebuilding a home since 2019.
- 30% higher building material costs since 2022.
- 67% increase in the total insured cost of extreme weather events over the past five years.
- 4 million properties face some risk of flooding.
- 20-40% in taxes added to premiums, with state governments collecting nearly AUD $8.6 billion in the 2024/2025 financial year.
Hot topics
In our latest market update, we focus on three topics affecting the Australian insurance market:
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- Liability trends
- Regulatory changes
- Mental health crisis.
- Liability trends
Australian insurance market trends show a continued market stabilisation and softening, leading to a shift in appetite and increased competition with new insurers entering the market and smaller insurers increasing their market share.
We have seen more favourable terms for policyholders, comprising a legal framework that interprets ambiguous policy terms in the policyholder’s favour, and clear processes for claims management that mandate transparency and timely communication from insurers.
The cost for insurers to secure capacity remains high even for highly protected and well-managed risks.
The issues impacting the Australian liability market currently are:
- Labour-hire – there has been a significant increase in contract and labour-hire workers that are injured during work. The delays in recovery, sizable claim quantum’s and difficulty in defending the claims make them problematic for liability insurers
- Sexual abuse and molestation – there are no signs of these claims slowing down, with large settlements being awarded and new cases being revived
- Strata laws – with significant changes effective 1 July 2025 (with further updates expected later in the year), new strata laws in New South Wales focus on fairness, stability and transparency. This includes bans on unfair strata management contract terms, requirements for sustainability and accessibility infrastructure, increased developer accountability, and streamlined processes for owners
- Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) – a group of human-made chemicals used to make products resistant to heat, stains, grease, and water) – claims have caused concern in the USA, and while Australia has banned key types of PFAS chemicals, these claims have insurers on watch for insureds that import products with this exposure.
Emerging risks continue to require proactive identification and adaptable strategies. Some of these risks include:
- Natural disasters – extreme weather events and population growth in high-risk areas like South-East Queensland continue to drive claims and cost increases, particularly for property insurance
- AI and cyber threats – the growing use of AI creates new risks, from data privacy breaches to ‘deep fake’ content, necessitating updated policies and risk-mitigation plans
- Environmental, Social, and Governance (ESG) and class actions – ESG issues are increasing the scope for new types of class action lawsuits, which insurers and their customers must address.
- Regulatory changes
We have seen significant regulatory change over the past few years in the general insurance industry to improve governance and risk management. This has left many insurers little time to develop and enhance their compliance and reporting practices.
Key regulatory changes and upcoming initiatives:
- Financial Accountability Regime (FAR) – implemented in March 2025, this regime strengthens governance by imposing greater accountability on senior individuals within financial institutions
- Prudential Standard CPS 230 (operational risk management) – introduced by APRA in July 2025, this standard requires all regulated entities, including insurers, to enhance their operational risk management frameworks, particularly in areas like supply chain and claims handling
- Climate-Related Financial Disclosures – under the new Australian Sustainability Reporting Standards (ASRS), large businesses and financial institutions, including insurers, must begin disclosing climate-related information, with requirements phasing in from January 2025
- Consumer Comprehension and Natural Hazard Terms – a government initiative aims to standardise terms like ‘flood’, ‘fire’ and ‘storm’ in insurance policies and re-evaluate the standard cover regime to improve consumer understanding and potentially reduce costs in natural disaster-prone areas
- Review of Life Insurance Premium Practices – regulators ASIC and APRA are reviewing life insurers’ practices around premium increases, product design, and marketing, following concerns about frequent and large price hikes.
Many of these reforms are driven by the need to protect consumers, improve fairness, and ensure products and services meet reasonable expectations.
- Mental health crisis
There is a significant and worrying increase in mental health insurance claims in Australia, which is putting pressure on the insurance industry and highlighting a broader societal issue with mental health.
43% of Australians will experience a mental health condition in their lifetime. The rise is driven by numerous factors, including greater acceptance and reporting of mental health issues, stress from events such as the COVID-19 pandemic, and an aging workforce. This increase has led to rising costs, longer claim durations, and concerns about the affordability and sustainability of insurance and other forms of support for mental health.
The Australian Government’s Productivity Commission estimates that mental ill-health and suicide cost Australia as much as AUD $220 billion annually – that is AUD $8,800 per person. This staggering figure highlights the significant burden of poor mental health on Australia’s economy, stemming from factors like reduced workforce participation, increased absenteeism, higher healthcare costs, and lower productivity.
Two in five young people are now struggling – up 50% since 2007 and data shows Millennials, or Gen Z, are less resilient to work stress than previous generations. However, the biggest increase in mental health claims is in the 30 to 40 year age group, up 730%.
A near-doubling of insurance claims paid out for mental health-related issues compared to five years ago underscores an urgent need to address two issues:
- The underlying health epidemic sweeping the country
- The sustainability of insurance products to support Australians who experience mental health issues, including those who are forced to retire from the workforce.
Mental health-related total permanent disability (TPD) insurance claims have increased by almost 10% each year for the past decade. According to a recent report from the Council of Australian Life Insurers (CALI), mental health is now the leading cause of TPD claims, accounting for nearly one in three (31%) claims paid.
The report also noted a broader trend: in 2024 alone, insurers paid out more than AUD $2.2 billion in mental health-related claims, almost double the AUD $1.2 billion figure of five years earlier. Additionally, one in five income protection claims is now due to mental health, with insurers paying out more than AUD $887 million in 2024.
Summary
The Australian insurance market is facing a mixture of challenges. Slow economic growth, higher inflation, rising living costs, low productivity, and high interest rates are all contributing factors. Simultaneously, issues such as climate change, social inflation, AI, and cyber risks are creating further uncertainty. To stay competitive, insurers must adapt to these changing risks while embracing new technology. Leveraging tools such as artificial intelligence, predictive analytics, and automation, may help insurers assess risk more effectively, streamline claims processes, and respond to changing customer expectations.
This article was written by Principal Scott Kennedy and Monique Purcell, Client Engagement & Strategy Consultant.
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