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“Miserable weather” triggers insurance premium spike, profit drop

A massive jump in insurance premiums is pushing up the cost of living for ordinary Australians, but the higher premiums are not translating into bigger profits for insurers because heavy rains have blown out their costs, new research has revealed.

Decision Inc analysed data from the Australian Prudential Regulation Authority and Bureau of Meteorology and found a correlation between an increase in above-average rainfall and an increase in gross written premiums from insurers.

Aiden Heke, chief executive of Decision Inc Australia, said the need for insurers to manage their own risks was creating a big gap between the volume of premiums and their profits.

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We’re not looking for a bad guy here – insurers are suffering as much as anyone else in this. We see them trying to manage their risks and struggling with profitability in general insurance because the uncertainty, although it feels predictable to us because we’ve had such miserable weather and catastrophic events, it is unpredictable for them. This doesn’t sit inside their models, so it’s challenging for them as much as it is for all of us

Aiden Heke, Decision Inc. Australia CEO

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The data showed that gross premiums have increased from $8.3 billion in 2019 to $10.4 billion last year, in line with rainfall increasing from 102,000 millimetres in 2019 to 172,000 millimetres last year.

But far from insurers profiting from higher premiums, the profitability of the general insurance segment declined during the period thanks to the increasing prevalence of catastrophes.


The sector recovered from a $144 million loss at the hight of the pandemic in 2020 to end last year $140 million in the black, but for this calendar year to date the industry is back in the red to the tune of $11 million, the research found. The data showed that paid claims have increased from 1901 in 2017 to 4801 in 2020 and 4509 last year.

“You can clearly see a broad correlation with how increases in rainfall are affecting the insurance sector over the past three years,” said Mr Heke.

“This is yet another, yet underdiscussed, driver of inflation and higher living costs for Australians and businesses.”

And as cost of living pressures continue to hit, the trend of increasing premiums is not going away fast, leading to fears many – particularly those living in flood zones or fire-prone areas – will either become uninsured or uninsurable without a comprehensive plan for action.

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“It is a whole of system solution that needs to be undertaken in Australia and globally, and you’re starting to see that where governments are taking greater responsibility,” Mr Heke said.

This article was originally published by Australian Financial Review


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