Australia’s Car and Home Insurance Premium to Rise This Year

insurance premium

A three percent increase in insurance premium for cars and homes is in sight for for Australians this 2016. This comes in sharp contrast to the two percent decline in Australian insurance premiums in 2015.

According to analysts, insurers are aiming the insurance premium hike to recoup some of their losses. Many insurers were badly hit by the pay outs after a spate of natural calamities in 2015. The proposed 3 percent increase will be on top of the 2 to 3 percent target for inflation.

The hike will be a dramatic change, noted JP Morgan and consulting firm Taylor Fry, reports The Sydney Morning Herald. “The last two years in motor were pretty soft. A big part of it is competition,” said Siddharth Parameswaran, senior insurance analyst at JP Morgan. He was commenting on the upcoming hike in prices for insurance premium. A series of natural catastrophe claims, ranging from the Anzac Day hailstorm in Sydney in 2015 to Cyclone Marcia heaped a huge burden on many insurance companies.

Adding to that pain was the insurers getting hit by low returns from volatile investment markets. In 2010, companies such as IAG and Suncorp were getting double-digit price increases from new policies. But the years that followed saw property insurance premiums getting stuck in an anemic one percent growth. “Given the tough profit trends in 2015, we’re seeing consistency in the key concerns from underwriters, with the top issues remaining the same as last year – competition, rates and capacity,” Taylor Fry principal Kevin Gomes said.

Meanwhile, an expert report said prolonged competitive pressures and a string of natural catastrophes have made the Australian insurance sector a hotbed for mergers. According to JPMorgan senior analyst Siddharth Parameswaran, who released the JPMorgan and Taylor Fry’s 2015 general insurance barometer report, 2015 was “surprisingly bad.”

Top insurers were hit by wild weather events that botched their expectations of a hassle free El Nino season. The escalation of claims came when growth in insurance premiums were stagnant or in downturn. In 2015, the commercial insurance premiums had a decline of 6 percent. Domestic premiums stayed stagnant and that hit the profitability of Australia’s top insurers, reports The Australian.

In the short or medium term, a merger of Australia’s big insurers, IAG, Suncorp or QBE is nowhere in sight. But Parameswaran said the chances of some businesses spinning off cannot be ruled out. The best example is in the NAB’s sale of its life insurance division to Nippon in 2015 for AU$2.4 billion.

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