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Why your premiums are going down
This edition of Adroitness has been brought to you by Bernadette Vanderwolde and Damon Edwards of our Doncaster and Ballarat branches respectively. They teamed up to provide this great overview of the cyclical nature of our industry and how recent events might just have led to reduced premiums and extra money in your pocket!
Like any financial industry, the insurance market is a cyclical one and we have various peaks and troughs. In a “soft market” clients enjoy premium reductions and broader coverage. In a “hard market” clients may suffer premium increases and higher excesses.
In the space of just over a month from late December 2010, Australia suffered two of the worst insurance catastrophe losses in its history with Tropical Cyclone Yasi ($1.3Billion) & the Queensland floods ($2.38Billion) wreaking havoc. These losses rounded off a horror two years for insurers with Black Saturday Bushfires in 2009 ($1,26 Billion), Perth Hailstorms ( $1,02 Billion) & the Victorian Floods in 2010 ($1,16Billion).
With other major losses considered there were approximately $7.25 billion dollars of catastrophe claims over this period and as a consequence insurers reacted swiftly, with steady increases to insurance premiums. As such, we saw ourselves in a “hard market”.
|February/March 2009||Black Saturday Bushfires||$1,266 Billion|
|March 2010||Perth Hailstorms||$1,019 Billion|
|March 2010||Victorian Floods||$1,160 Billion|
|December 2010 / January 2011||Queensland Storms||$2,380 Billion|
|January 2011||Tropical Cyclone Yasi||$1,300 Billion|
But then something – or should we say… nothing really happened… Since February 2011 there has been only one billion dollar catastrophe claim, the Brisbane Hail storms in November 2014 and as a consequence insurers have been slowly reducing premiums. This is because insurers and reinsurers profits are rising, investment, capital and insurer confidence is higher than ever.
We are now in a “soft market” and insurers are chasing business and creating competition. A steady decline in storm activity and natural disasters experienced in Australia over the last 3 years sees insurance premiums start to reduce, for the first time since 2011.
In the twelve months to June 2014, the KMPG General Insurance Industry Review includes the following key findings:
- Overall profits of insurance companies have increased 8.3 percent during the 2013/2014 year.
- The current loss ratio (premium v claims) of 61.6% is at its lowest in the past 5 years.
Whilst there are many factors which determine which part of the cycle we are in, there is also a lot of speculation about what will happen for the industry to change cycles.
We detail below some of the factors and the impact they have on the profits of insurers.
Whilst these are not guarantees of reduced premiums for all, we recommend you talk to your risk adviser today to see what reductions could be available to you.