Repeated climate change-induced natural catastrophic (Nat-Cat) events have resulted in an increase in claims paid by Australian property insurers and consequently pushed their loss ratio up from 66.1% in 2019 to 84.6% in 2021. The loss ratio is expected to remain above the 80% levels over the next five years, impacting the profit margins of the insurers, predicts GlobalData, a leading data and analytics company.
GlobalData’s latest report, ‘Australia General Insurance: Key Trends and Opportunities to 2026’, estimates the paid claims of Australia’s property insurance segment to increase at a compound annual growth rate of 4.0% from AUD6.0 billion ($4.5 billion) in 2021 to AUD7.3 billion ($5.5 billion) in 2026.
Ashish Raj, Insurance Analyst at GlobalData, comments: “Due to various geographical reasons, Australia is prone to natural catastrophes, and the frequency of such events has increased recently. In the last two years, the country has suffered wildfires, floods, cyclones, and earthquakes which have resulted in a significant increase in property insurance claims.”
The floods that occurred in February 2022 heavily impacted New South Wales and Southeast Queensland, resulting in 118,000 property damage claims amounting to AUD1.8 billion ($1.3 billion), as of 10 March 2022. The floods in the two states in March 2021 led to 107,844 claims of worth AUD1 billion ($748.7million).
Raj continues: “High Nat-Cat led losses along with the slowdown due to the COVID-19 pandemic has compelled property insurers to increase premium significantly in the last couple of years. In fact, some buyers have been billed a renewal price increase of more than 300%.”
The premium rate is expected to rise further over the next few years which can make property insurance more expensive for many policyholders. The expected increase is likely to have a negative impact on the property insurance segment, leading to underinsurance and even non-renewal of policies in the long-run. According to the Climate Council of Australia, 4% of properties will become uninsurable by 2030.
Amid the increase in premium prices, the Insurance Council of Australia has established a Climate Change Action Committee. The committee is collaborating with general insurers and other stakeholders to help the country’s transition into a low-carbon economy to reduce the impact of climate change and keep the insurance premium rates affordable.
Raj concludes: “Property insurers in Australia will have to walk a tightrope between profitability and customer retention as climate change and its associated risks become more prevalent over the coming years. Insurers must also offer products considering the risk profile of geography to ensure that products for customers in low-risk zones are not overpriced.”
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