What is insurance?

Insurance in Australia is a financial product in which an insurance company agrees to compensate the policyholder for specified losses in exchange for a premium. The system covers a wide range of risks across home, contents, car, health, life, business, and travel, and is regulated under the Insurance Contracts Act 1984 and supervised by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).

Insurance contracts have several common elements. The premium is the amount paid to the insurer, usually annually but sometimes monthly. The sum insured (or sum assured) is the maximum amount the insurer will pay for a claim. The excess (also called deductible) is the amount the policyholder pays first before the insurer pays the rest. The policy document, supported by the Product Disclosure Statement (PDS), sets out exactly what is covered, what is excluded, the conditions for making a claim, and the rights of both parties.

Australian insurance is built on the principle of utmost good faith. Both the insurer and the policyholder must act honestly and disclose all relevant information. Section 21 of the Insurance Contracts Act 1984 requires policyholders to take reasonable care not to make a misrepresentation when they take out a policy and to answer all questions accurately. Failure to disclose can allow the insurer to refuse a claim or cancel the policy. The insurer must explain the duty of disclosure in writing before the contract is finalised.

Disputes between insurers and policyholders are first dealt with through the insurer's internal dispute resolution process, which must respond within 30 days. Unresolved complaints can be taken to the Australian Financial Complaints Authority (AFCA), an independent ombudsman that handles disputes across financial services. AFCA decisions are binding on the insurer up to specific compensation limits (typically about 1 million dollars per general insurance dispute). Major Australian general insurers include Insurance Australia Group (IAG), Suncorp, Allianz, QBE, and Zurich. The federal government's Cyclone Reinsurance Pool, established in 2022, helps moderate premiums in northern Australia for household, strata, and small business insurance.