With summer still ahead of us and Sydney and NSW already having begun to feel the full brunt of nature’s vengeful side, it’s nice to know that Australia’s general insurance industry is deemed as low risk. But why in a country that has been ravaged by floods, fires, earthquakes and cyclones all in the last decade is the insurance industry so optimistic? Let an insurance lawyer explain:
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The news of Australia’s insurance sector being deemed low risk comes from Standard and Poor’s (better known as S&P) research and investigation. The big reason behind this classification is that insurers have, in recent years, begun to effectively manage exposure to risks like floods and earthquakes in their available insurance policies. After the 2011 Brisbane floods, many residents were shocked to find their insurance didn’t cover that level of flooding, or any at all, and demand from these customers has had a nation-wide impact on how insurers and the general public approach natural disasters and the like in insurance policies.
Insurance companies are in the business of making money, so when natural disasters cause billions of dollars worth of damage it can be hard to understand how insurers still manage to make a profit and keep their insurance policies worthwhile and effective. What it all boils down to is rate increases which have been able to cover these higher claims and insurance costs, as well as things like product deductibles and cover being revised to still be appropriate for what the customer needs, without negatively affecting the insurance company.
At this point in time there is a positive view in regards to the Australian general insurance sector, thanks partly to the industry’s return on equity staying above 10% for the last five years, and financial and credit analysts predicting it to stay that way for some time. There’s also been nominal premium growth of four to seven per cent anticipated for the rest of this financial year, though the general insurance growth prospects have been rated neutral by S&P. This is because the insurance industry’s gross written premium as part of GDP (gross domestic product) has only been roughly two and a half per cent over the last five years. But why is the equity return so strong?
It’s all to do with a strong underwriting performance to provide enough support for equity returns to grow. S&P have predicted that for this financial year the net underwriting combined ratio for the entire Australian general insurance sector will be stable at 90 to 95%. Alongside this strong underwriting performance, return on equity is further supported by strong and stable investment returns, effective cost control of lifted profits, and cuts to insurer costs including consolidations, offshoring and IT improvements. So what does this all mean for you as a customer?
With a strong insurance sector, particularly one that has been rated as low risk by such a global insurance giant as S&P, it’s the best time for you to look into entering or updating your insurance, particularly in regards to natural disasters, as Australia’s catastrophe insurance programs are some of the largest worldwide. You really never know when you just might need it.