Beyond the floods The industry did well last year, after the 2019/20 Black Summer. But will the worst floods on record derail its momentum? By Bernice Han
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eneral insurers in Australia performed significantly better last year, more than tripling their combined insurance profit to about $3.48 billion, KPMG says in its annual state-of-the-industry review. In 2020 the industry could only manage $915 million, the first time in the five-year period going back to 2017 when insurance profit did not crack the $1 billion mark. Earnings that year took a huge drubbing from several natural hazard events including the 2019/20 Black Summer bushfires and also initial recognition of Covid-19 business interruption provisions. KPMG says the increase in gross written premium (GWP), by 11% to $53.85 billion, with no similar corresponding rise in claims costs was a deciding factor last year for the industry. Insurers were continuing to reprice for claims cost inflation across all lines of business, with the exception of compulsory third party, travel and employers’ liability lines. The rate changes were most “profound” in motor and home classes for personal products as well as commercial property and professional indemnity products, according to the review. “These rate rises are a result of insurers continuing to price products to reflect the underlying risks and costs of a policy which will drive a more sustainable product,” KPMG says. KPMG estimates GWP last year clocked an average quarterly increase of 2.6%, representing the “highest percentage movement” it has seen in recent years. “It demonstrates the continued hardening of the market,” KPMG says. As the industry approaches the half-way point of 2022, predicting whether it can match or even surpass last year’s results is a difficult exercise, not least because
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of the floods in New South Wales and Queensland. KPMG released the report in April, as the extent of flood damage began to emerge. While the waters have subsided, repairs are being held up by acute shortages of tradies and building materials. The still evolving fallout from the February/March catastrophe – the country’s most costly flood event with insured losses in excess of $4.3 billion – is just one of a number of headwinds pressuring the industry. Supply chain disruption is another challenge facing the industry. Delays to flood recovery works, on top of yet-to-becompleted construction repairs from prior catastrophes, are potentially adding to cost pressures. “It’s not a rosy position for insurers as they head into the year,” KPMG Insurance Partner Scott Guse tells Insurance News. “It’s impossible to tell at this stage (if they can do better than last year). It will come down to the reinsurance agreements they strike and how many catastrophes that we have.” Reinsurance renewal talks are set to finalise by June 30 and even before the February/March floods struck, reinsurers had already indicated further rate increases were on the cards for Australian clients. Mr Guse says reinsurance rates went up in the December renewal season and also most recently in March, which was due partially to recent perils in Japan. “What is clear from the reinsurers is that they have upped the prices and they’re obviously going through a process now of discussing those increases with the insurers,” Mr Guse says. “The [NSW/Queensland] event means that you’re likely to see further increases… we’ll get a much clearer picture come June 30.” As reinsurance rates go up for the industry, so will
