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Rate hike threatens insurance demand
insuranceNEWS.com.au, 11 February 2008

Rising interest rates threaten to slash demand for personal lines insurance as householders try to meet spiralling mortgage payments.

The Reserve Bank's increase in the official cash rate by 0.25 percentage points to 7% has pushed home loan rates to 9%, with further hikes predicted this year.

NIBA CEO Noel Pettersen says demand for personal policies could suffer as a result.

"People will spend on things that are important to them," he said. "Unfortunately insurance is an intangible and the benefits are realised only when it is time to claim. People may take the risk or decide they can't afford it anymore."

Media reports last week from storm-affected suburbs in Sydney indicated significant numbers of homeowners have dropped insurance because they can no longer afford it.

Mr Pettersen says the Federal Government could mitigate rate hikes by reducing insurance taxes.