Why Are My Premiums So High?

Running a business comes with plenty of moving parts, and insurance is one of them.

Your premium is built from different elements, not just a single base price, so it helps to see what is actually going into that figure.

Premiums reflect a mix of:

• Business risk
• Location
• Building quality
• Claims history, and
• State taxes and levies that sit on top of the base premium
• Sums insured
• Optional covers
• Size of deductibles
• Risk management

Understanding what is pushing costs up helps SMEs make clearer decisions about what to keep, change, or cut from their cover.

Insurance Pricing Starts With Risk, Then Layers On More

Insurers judge the risk of your business being exposed to an insured event (frequency) and the dollar value of any resultant claim (severity), by looking at what you do, your claims record, and your exposure to events like theft, fire, or storms.

They also build in the cost of reinsurance; this is the cover insurers buy for themselves when big or unexpected losses hit. Reinsurers operate on a global basis and therefore are also impacted by the insurance costs of global events.

In Australia, where extreme weather losses have climbed sharply in the past five years, reinsurance has become a larger slice of what every customer pays. Recent Insurance Council of Australia (ICA) data shows insured extreme weather losses now average around $4.5 billion a year. That’s about two-thirds higher than in the previous five-year period.

The federal government’s Cyclone Reinsurance Pool is starting to ease some of that pressure. In medium to high cyclone-risk areas, average SME building and contents premiums per $100,000 sum insured have fallen by about 24 percent since insurers joined the scheme.

Taxes and Levies Add a Heavy Extra Layer

A big slice of what SMEs pay for insurance is not about their own claims record or risk controls at all. State and territory governments charge stamp duty. In some jurisdictions, emergency services levies on many general insurance policies.

Recent analysis from the Australian Chamber of Commerce and Industry finds these taxes and levies can lift premiums for small businesses by up to about 30 per cent, depending on the state and the cover in place.

Across Australia, insurance customers now pay almost $8.6 billion a year in state taxes tied to general insurance premiums. That figure is higher than the industry’s total annual profit, so a sizeable share of every premium dollar flows to government rather than to claims and cover.

It is good to know that business groups and the ICA are now calling for reform of state taxes and government charges, arguing this would ease pressure on business premiums over time.

Recent ICA tax reform material also shows state insurance taxes and charges can add between about 20 and 40 percent to the price customers pay, depending on the jurisdiction.

Location Shapes Your Premium More Than You Think

Where your business is based directly impacts what you pay for insurance.

Insurers look at local exposure to flood, bushfire, cyclone and severe storms, as well as crime levels and how expensive repairs are in your region. In some regions, repeated disaster losses have driven premiums up across whole postcodes, even for businesses that have never lodged a claim. That is why two almost identical businesses can still pay very different premiums, simply because of where they are located.

The way your premises are built also matters. Older buildings, lightweight construction, or premises that do not meet current standards can cost more to insure because repairs or a rebuild are likely to be more complex and expensive. Rising construction and labour costs across Australia have magnified that gap in the past year, especially for larger rebuilds.

What SMEs Can Still Influence

Despite all these pressures, there are still levers business owners can pull on the insurance side. These set sums insured and excesses based on your businesses risk appetite and financial requirements.

Review excess levels

• Bundle policies
• Trim outdated cover and
• Invest in risk improvements can all shift the premium

Practical steps such as better security, stronger maintenance routines and clearer risk documentation can manage your risk exposure and improve how insurers rate your business at renewal.

In the end, taxes and levies sit outside any individual business owner’s control. What is within reach is how your cover is structured and how your risks are managed and documented.

Working with us helps you see where each part of the premium comes from and adjust the pieces you can control, so every insurance dollar is pulling its weight for your business.

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