Australia — Premiums for car and home insurance are expected to rise sharply this year as insurers scramble to recover from a year of shrinking profits.
Profitability collapsed last year after big companies such as Suncorp and Insurance Australia Group faced a surge in payouts after a string of natural disasters in recent years, ranging from bushfires across Victoria to storms in Queensland.
The global financial crisis also caused earnings from the insurers’ giant investment portfolios to collapse, causing a drain on capital reserves.
Home insurance premiums are expected to rise about 9 per cent over the next year, according to the latest JPMorgan Deloitte general insurance industry survey. This follows a 10 per cent increase last year as insurers seek to reverse years of heavy discounting.
Rises in car insurance rates are more subdued, but are still expected to match last year’s 5 per cent rise.
The large number of significant weather events in recent years, including the more than $1 billion paid out in the wake of the bushfires that devastated Victoria early last year, are causing insurers to rethink the cost of providing cover, said an insurance research analyst with JP Morgan, Siddharth Parameswaran.
The rate increases largely reflect a re-evaluation of how much these events cost and how frequently they are likely to occur, said Mr Parameswaran, a co-author of the report.
Natural disaster payouts since 2007, at nearly $4.3 billion, are running at more than twice the 20-year average.
Mr Parameswaran said the price increases mark ”a real turn” in the insurance cycle. For most of the past decade, underwriters had been locked in a deep discounting war.
Elsewhere, compulsory third party car insurance premiums in NSW are expected to increase by 10 per cent, rounding off a second year of double-digit gains, while Queensland motorists will be hardest hit with prices expected to soar by as much as 15 per cent, mostly due to more generous benefits being paid out.
While prices are tipped to rise, revenue gains by insurers are likely to be tempered by a revival in competition, particularly among internet-based insurers.
The US giant Progressive Direct has recently entered the Australian market and aims to snare a slice of the $9 billion car insurance market selling only through the internet. Several overseas companies have been circling the Australian market, but Progressive’s entry represents by far the biggest headache to the big local companies.
Climate change was named by insurance underwriters as the most important issue confronting the industry: 67 per cent of respondents said they were concerned about increased weather-related claims.