Nat cat will to hurt Australian property insurers profit margin: analyst

Increasing claims have pushed property insurers' loss ratio to 84.6%.

Natural catastrophes that continue to plague Australia will continue to hurt property insurers for the next five years as claims continue to push the loss ratio over 80%, according to data and analytics firm GlobalData.

GlobalData estimates that paid claims of Australia’s property insurance segment will increase at a compound annual growth rate (CAGR) of 4.0%, an estimated $5.5b in claims by 2026.

Because of the increase in claims, property insurers’ loss ratio increased from 66.1% in 2019 to 84.6%.
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“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,” Ashish Raj, Insurance Analyst at GlobalData said.

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The flood that occurred in February in New South Wales and Southeast Queensland saw property damage claims amounting to $1.3b as of 10 March. The floods in the two states in March 2021 led to 107,844 claims of worth $748.7m.

“High Nat-Cat led losses along with the slowdown due to the COVID-19 pandemic has compelled property insurers to increase premiums significantly in the last couple of years. In fact, some buyers have been billed a renewal price increase of more than 300%,” Raj said.

GlobalData predicts that this rate increase will rise further over the next few years, making property insurance more expensive for many Australians. This will then see a negative impact on the property insurance segment that could potentially lead to severe underinsurance in the country.