Payouts drive car, home insurance rises
PHILIP WEN
INSURANCE premiums for cars and houses are expected to rise sharply as insurers scramble to recover from a year of shrinking profits.
Profitability collapsed last year after companies such as Suncorp-Metway and Insurance Australia Group had large payouts for a string of natural disasters, including bushfires and heavy storms.
At the same time, the global financial crisis caused earnings from insurers’ investment portfolios to collapse, causing a drain on capital reserves.
Home insurance premiums are under the most pressure to rise, with rates projected to jump by about 9 per cent over the next year, according to the latest JPMorgan Deloitte general insurance industry survey.
House insurance premiums increased 10 per cent last year as insurers sought to reverse years of heavy discounting.
Car insurance premium rises are expected to match last year’s 5 per cent increase.
The large number of payouts in recent years, including the more than $1 billion paid out in the wake of the Victorian bushfires, had insurers rethinking the cost of cover, said JPMorgan insurance research analyst Siddharth Parameswaran.
”The rate increases that have been pushed through are largely a reflection of re-estimation of how much these events cost and how frequently they are likely to occur,” said Mr Parameswaran, one of the co-authors of the report.
Natural disaster payouts since 2007 of nearly $4.3 billion are more than twice the 20-year average.
Mr Parameswaran said the price increases marked ”a real turn” in the insurance cycle after underwriters were locked in a discounting war for most of the past 10 years.
Elsewhere, compulsory third-party car insurance premiums in NSW are expected to increase by 10 per cent, rounding off the 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.
While prices are tipped to run up, gains are likely to be tempered by competition in personal insurance, particularly among internet-based companies.
US company Progressive Direct has recently entered the Australian market, looking to snare a slice of the nation’s $9 billion car insurance market with internet-only selling.
Several overseas companies have been circling the Australian market, but Progessive’s entry represents by far the biggest headache for the local companies.
Separately, insurance underwriters cited climate change as the most important issue confronting the industry.
Tags: Australian market, Insurance Australia Group, JPMorgan Deloitte, Queensland motorists, shrinking profits, Suncorp-Metway