Introduction
In 2024, the Australian insurance market continues to be impacted by natural disasters, supply chain disruptions, high inflation, regulatory changes and, for the first time, cyber and operational resilience.
The market is seeing more frequent claims with higher claims costs. With the annual CPI inflation rate at 5.6% for insurance and financial services, insurance coverage risk exposure has increased in line with motor and home asset valuations increasing. These factors have caused insurers to increase premiums.
In August 2024, Suncorp Group, one of Australia’s largest insurance providers, with brands including AAMI, GIO and Vero, advised it will increase premiums this financial year by up to 9% as labour shortages, inflation, and extreme weather, keep pushing up insurance costs. Suncorp has called for government reform, expressing concern with:
- lithium batteries and their involvement in an increasing number of house fires, and
- ageing “flexi-hoses” in residential properties, which are responsible for significant flooding events in residential homes.
In the current market, Australians are experiencing budgetary pressure and are more likely to reduce expenditure on insurance, causing underinsurance on repairs, rebuilds or replacing property.
Industry snapshot
Claims costs continue to rise according to the Insurance Council of Australia’s “fact pack” published in July 2024. An overview is outlined below:
- 88 million general insurance policies written in Australia
- Global reinsurance premiums have increased by up to 30%
- 27% higher cost of repairing and rebuilding a home since the start of the COVID-19 pandemic
- Since 2010, natural disasters have caused more than AUD $34 billion in insurance claims, broken down as follows:
- 38% flooding
- 34% storms and hail
- 18% cyclones
- 10% bushfires
- 6 million Australian homes are at risk of a bushfire
- 1 in 12 properties have some level of flood risk
Hot topics
In our latest market update, we focus on three topics affecting the Australian insurance market:
- Rise in lithium-ion battery fires
- Class actions
- Cladding
Rise in lithium-ion battery fires
The increased demand for lithium-ion batteries is driven largely by the imperative to protect the environment and reduce climate change, through electrification of mobility and the broader energy transition.
According to the Australian Competition and Consumer Commission (ACCC), rechargeable lithium-ion batteries are the most widespread portable energy storage solution globally. The batteries are used in a range of consumer products, including:
- Digital cameras
- Drones
- Electric vehicles such as e-bikes and e-scooters
- Handheld power tools
- Household appliances and tools
- Personal devices such as mobile phones, tablets, laptops
- Personal transportation devices
- Remote control cars
- Renewable energy storage systems
- Solar power storage units
- Toys
- Wireless headphones
Through a lack of standardised processes and regulations, as well as data transparency, cheap products and batteries have flooded the market in recent years. Lithium-ion batteries are highly flammable. They present a significant risk when over-charged, short-circuited, damaged, submerged in water, or exposed to extreme temperatures, and can cause fires and explosions leading to property damage, serious injuries, and deaths.
In 2022, the ACCC reported a 92% increase in lithium-ion battery incidents, including swelling, overheating and fires compared to 2020. Fires have occurred in homes, offices and waste/recycling trucks and facilities.
It is difficult to assess the cause of these fires and prove when a fire has been caused by a lithium-ion battery failure. In Australia, the regulatory framework differentiates in each jurisdiction, causing confusion, gaps, and inconsistencies in claims. Insurers have observed lithium battery fire claims triple over three years, with most caused by incorrect chargers, defective batteries and overcharging. We are also observing cover for buildings, in which EV chargers are being installed, undergo scrutiny for risk and potentially becoming uninsurable or attracting a significant increase in premium.
In NSW, from February 2025, new testing, certification and labelling requirements will be introduced in a staged process after fair trading categorised the devices, their batteries, and chargers as “declared electrical articles” under the Gas and Electricity (Consumer Safety) Act 2017. The standards will enhance consumer safety by reducing the risk of fires associated with these products.
Class actions
The Australian class action legal landscape continues to evolve rapidly, in what is an increasingly plaintiff friendly jurisdiction. There are a growing number of plaintiff class action legal practices, which are supported by third-party litigation funders. There is also the added attraction, in Victoria, of “group costs orders”, which allow plaintiff firms to charge legal costs as a percentage of the amount recovered in the proceeding.
The class action regime is dynamic and is frequently redesigned by legislative, regulatory, and judicial developments.
As at the end of the 2024 financial year, current class actions in the Australian courts include:
- High Court – 41
- Federal Court – 138
- Supreme Court – 72 (predominately NSW and Victoria)
Evolving class action areas in Australia include:
- Consumer class actions across both products and services
- Data and technology – driven by increased scrutiny around cyber breaches and the increasing sophistication of artificial intelligence (note, for example, the “Optus” class action filed in the Federal Court in April 2023)
- Environmental, Social and Governance (ESG) with the pursuit of environmental and climate-related mass torts
- Shareholder actions following a settlement reached with AMP Limited in the AMP shareholder class action, for the sum of AUD $110 million inclusive of costs in November 2023
- Wage underpayments based on recent settlements, such as hospitality giant, Merivale settling a massive underpayment class action for AUD $18 million
For Australian insurers, there are group proceedings brought on behalf of persons who purchased “add-on” insurance policies at around the same time they purchased a separate policy. For example, in the matter of Tracy-Ann Fuller and Jordan Wilkinson v Allianz Australia Insurance Ltd and Allianz Australia Life Insurance Ltd (S ECI 2020 02853) it is alleged that Allianz and Allianz Life engaged in conduct that was misleading or deceptive, that was unconscionable, or by which Allianz and Allianz Life were unjustly enriched.
We have seen several Consumer Credit Insurance (CCI) class actions which are based upon allegations that the Respondents engaged in misleading or deceptive conduct, caused customers to make payments, engaged in unconscionable conduct, and unlawfully provided personal advice. The following settlements have recently been approved:
- In the ANZ CCI Class Action, the Federal Court approved an AUD $47 million settlement in June 2023
- In the Westpac CCI Class Action, the Federal Court approved an AUD $29 million settlement in June 2023
- In the CBA CCI Class Action, the Federal Court approved an AUD $50 million settlement in September 2023
We are also continuing to deal with COVID-19 related matters and a group proceeding (class action) on behalf of business owners who suffered economic loss as a result of the Stage 3 and/or Stage 4 restrictions imposed in Melbourne and regional Victoria in response to the ‘second wave’ coronavirus (COVID-19) outbreak.
The UK law firm Pogust Goodhead recently entered Australia with the stated intention to commence 30 plus matters in the next 12 months. This has the potential to re-shape the class actions market in Australia.
Cladding
In recent years, Australia has been dealing with a significant problem known as the ‘Australian cladding crisis’. This crisis revolves around the use of combustible cladding materials in construction projects, posing serious risks to building safety and public health.
According to a study published in the International Journal of Environmental Research and Public Health, combustible cladding presents a severe threat due to its flammable nature. This type of cladding, often made from materials such as Aluminium Composite Panels, has been implicated in several high-profile building fires worldwide, including the Grenfell Tower fire in London and the Lacrosse Apartments fire in Melbourne.
The International Journal of Environmental Research and Public Health stated that the causes of Australia’s combustible cladding crisis include deficiencies in the National Construction Code. The crisis is estimated to cost approximately AUD $6 billion to remediate.
Cladding continues to be a key issue in the insurance market. In Owners – Strata Plan No 91086 v Fairview Architectural Pty Ltd (No 3) [2023] FCA 814, the Federal Court ruled that a contractor who merely affixed combustible cladding to a building may have caused “property damage”, thus triggering the operation of the contractor’s liability policy.
The Fairview decision has been appealed and the outcome is likely to have significant implications for the future interpretation of defined terms in liability policies, such as “damage to property” and “occurrence”. If the appeal is unsuccessful, there is a risk it may broaden access to cover, significantly increasing liability insurers’ exposure for insureds who supplied or installed non-compliant cladding.
For more information about the Fairview judgment, please see a case note published on 28 July 2023 by Principal, David Randazzo.
The frequency of combustible cladding in buildings has contributed to rising insurance costs for property owners and developers. Insurers are reassessing their risk exposure and adjusting premiums accordingly, particularly for properties believed to have a higher risk of fire due to the existence of combustible cladding. This has financial implications for both residential and commercial property owners, who may face higher insurance premiums or have difficulty obtaining coverage for properties affected by the cladding crisis.
Summary
Rising insurance costs are affecting customer behaviour, with consumers shopping around and switching providers, under insuring or not renewing policies. This has led to considerable increases in competition between insurers.
Insurance premiums are increasing to cover repair and replacement cost challenges, as well as increasing natural disasters, such as flooding, storms, and hail, cyclones, and bushfires. Looking ahead, further material rate increases in most jurisdictions should support strong premium growth in 2024-25.
The three issues impacting the market currently are:
- The Australian cladding crisis and the outcome of the appeal in the full Federal Court’s Fairview decision
- the new testing, certification, and labelling requirements in lithium-ion batteries from February 2025, and
- the impact of the arrival of Pogust Goodhead on the class actions landscape in Australia.
This article was written by Principal Scott Kennedy and Monique Purcell, Client Engagement & Strategy Consultant.
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