Federal Budget 2026: Affordability, regulatory settings and innovation for the insurance sector

The 2026 Federal Budget includes several measures with direct relevance for insurers, property insurance affordability, private health insurance, regulatory settings and innovation. While some initiatives are constructive, the package stops short of addressing several of the structural pressures affecting the sector.

Property insurance affordability and climate risk

The Government has allocated $3.4 million over four years to support measures aimed at reducing property insurance costs and unintentional underinsurance. This includes $2.4 million for Treasury to legislate standard definitions for natural hazard terms and improve transparency around home and contents premiums, as well as $1 million for ASIC to maintain the North Queensland home insurance comparison website. These measures are useful from a consumer perspective, particularly in areas where policy wording, coverage terms and the drivers of increased premiums are not well understood, which were issues that clearly arose from the government’s inquiry into the 2022 major flood claims.

This Budget did not address the main affordability pressure which is being driven by underlying climate risk. The Insurance Council of Australia (ICA) and others in the industry had hoped for a larger resilience or mitigation funding response. Based on the latest analysis from the ICA, the economic cost of extreme weather in 2025 reached $8.6 billion, with premiums for home insurance increasing by 51 per cent between 2020 and 2025, calling on a need for more funding.

Regulatory settings: Less prescription, continued scrutiny

The Budget forecasts $780 million a year in compliance savings across the financial services sector as part of a broader plan to reduce regulatory burden by $10.2 billion annually across the economy. For insurers operating across multiple products, jurisdictions and obligations, any reduction in unnecessary administrative complexity is welcome. The more important question, however, is where compliance activity becomes simpler in practice and where expectations remain unchanged.

This is an important caveat as both APRA and ASIC received funding increases to strengthen supervision and enforcement, indicating that a lighter-touch regulatory architecture should not be mistaken for reduced oversight. For insurers, this points to an operating environment where governance, conduct, reporting and prudential discipline remain critical, even if some approval pathways or administrative processes become more streamlined. In short, the Budget may change how regulation is delivered, but not the expectation of robust compliance.

Private health insurance: A material change for the sector

The most consequential Budget measure for many insurance clients is the proposed change to the private health insurance rebate for older Australians. From April 2027, the higher age-based rebate rates are expected to be standardised, meaning eligible Australians aged 65 to 69 and 70 and over would receive the same base rate as younger adults in the same income tier. This represents a meaningful shift in pricing dynamics for funds with older member bases and for businesses operating across the private health ecosystem.

Industry commentary suggests the impact on older Australians could be significant, particularly when combined with premium increases already applying from 1 April 2026. For insurers, the issue is not only affordability at an individual policy level, but also the potential for changes in member mix, potential for downgrading and lapse rates. Any sustained movement by older members out of higher-value cover could have implications for product design as well as pressure on the broader health system.

Private health insurers will need to consider how this will impact customer retention, affordability, product design and where customers are seeking to downgrade cover, the clarity of exclusions and understanding of the product they have purchased.

Opportunity for smaller players, market entrants and insurtechs

The Budget also includes measures that may support growth and innovation across the sector. APRA’s delegated approval threshold for banks and insurers will increase from $5 billion to $10 billion, which may reduce friction for smaller players seeking to scale or pursue transactions. In parallel, reforms to the R&D framework include an increase in the expenditure cap from $150 million to $200 million, which could be relevant for insurtechs and insurers investing in new products, data capability and risk modelling.

This combined with less red tape from a regulatory perspective, could be the advantage smaller industry participants need to accelerate competition.

Key takeaways for the insurance sector

Overall, the Budget presents a mixed outcome for the insurance sector. It includes targeted steps on policy clarity, regulatory streamlining and innovation, but it does not materially resolve the deeper pressures driving affordability, resilience and system sustainability. Insurers will need continued focus and leadership around sector-led resilience, whether related to extreme weather or longevity and health.

How BDO can help

If you would like to understand how the Budget may affect your organisation, BDO’s financial services team can help assess the implications for strategy, regulation, risk and growth. Our team of specialists work with insurers across property, private health, and innovation and technology, to help you navigate regulatory changes and respond to a complex operating environment. Contact us today for support.