Insurance premiums set for modest rises

Businesses will not be overly affected by insurance premium hikes in the wake of the Queensland floods, according to new research by consultancy firm Aon and the Royal Bank of Scotland.

The Commercial Insurance Broker, in a study of the December quarter 2010, says the cost of recent natural disasters to insurers will push up the premiums for personal insurance, with double digit rises in home insurance and 5% to 7% rises in motor insurance.

The research indicates commercial insurance will also be pushed higher, although to a lesser extent. According to Aon, commercial rates remained stable for most classes in the December quarter as competition is being driven by an abundance of available capacity.

“Although insurers remain profitable, the level of profitability appears to be diminishing in the wake of recent catastrophes,” the report states.

“This may affect commercial premium rates in 2011, but Aon believes ample capacity remains to temper any price hikes.”

However, Aon says international insurers are looking to commit more capital to the Australian market, and it expects to see several overseas newcomers in the first half of the year.

“As an example, HDI Gerling, a major international insurer, is looking to increase its presence in the Australian market, and to offer a wider range of insurance lines,” the report states.

According to RBS analyst Michael Leonard, it is still too early to determine what impact the floods may have on the market, and whether this will lead to higher reinsurance costs.

“The extent of the Australian flood losses has yet to be quantified, but [reinsurance company] Munich Re has publicly stated that it expects it to be a very significant event that will put upward pressure on property reinsurance rates in 2011,” Leonard says.

With regard to trade credit, the RBS report says insurers are starting to approach risk-pricing more favourably as both local and global economic conditions continue to improve.

“Although poorly performing sectors remain, such as construction and transport, claims reserves are not being exceeded,” Leonard says.

“This shows that some stability has returned to the market following a period of large losses that eroded many insurers’ entire premium bases.”

“There hasn’t been a significant corporate collapse in Australia that has affected the insurance market. There are continuing signs of economic improvement and the major banks are starting to relax their lending criteria.”

“Competition has started to surface in this market faster than we expected. All major insurers have advised that they are open for business. We believe this is due to the improving environment in Europe.”

“As a result, pricing structures have relaxed for better rated business, predominantly where cumulative loss ratios are below 30%.”