Insurance premiums rise after natural disasters

A combination of floods, bushfires and natural disasters, and the global financial crisis, is already pushing up insurance premiums for businesses and households, and insurance experts are warning further increases are likely.

The damage bill from last week’s devastating floods in Queensland and New South Wales is already up to $40 million and looks certain to rise with 20,000 residents still stranded by floodwaters.

Queensland-based insurance company Suncorp has revealed it has already exceeded its $120 million per half-year allowance for major weather events by about $70 million, while Insurance Australia Group has exceeded its allowance by $23 million.

Insurance Australia Group chief executive Mike Wilkins also says a 30% slump in new car sales has restricted the growth of car insurers.

The global financial crisis has also hit insurers hard. When equity markets were performing well, insurance companies could rely on big profits on their investment portfolios to cushion any losses on their actual insurance businesses. But that has changed in the past 12 months.

Peter Sheedy, principal at Brisbane-based insurance broking firm Qsure, says premiums are already on the rise for most forms of insurance, particularly those related to property.

“Generally speaking we’re seeing insurance premiums rise 10% to 15% on most lines. It’s a combination of the run of natural disasters and the falling investment markets.”

But there is one bright spot – premiums are actually falling in the area of “management liability”, which includes director liability and insurance protecting companies from unfair dismissal claims. It appears many insurance companies have spotted an opportunity in this area and competition is fierce.

“My impression is that those risks are being much more competitively priced,” Sheedy says. “Anybody who is looking for insurance in that area will find it is a bit cheaper than it was last year.

• Financial Services and Insurance Industry Trends