Flood impact on premiums inevitable: KPMG – Local – Insurance News
The latest NSW/Queensland flood disaster, one of the worst to hit the east coast in years, will have an “inevitable” impact on premiums, said KPMG insurance partner Scott Guse.
He told the insuranceNEWS.com.au insurers are likely to have no choice but to raise their rates as their reinsurance costs have risen due to the increasing frequency and severity of natural disasters.
The NSW/Queensland floods, with losses already exceeding $2.42 billion from more than 173,000 claims filed so far, are adding pressure on reinsurers to charge more in upcoming renewal negotiations with insurers Australians.
“We are likely to see a combination of specific price increases for these riskier policies, but also a generalized price increase due to increased reinsurance costs,” Mr Guse told Insurance.NEWS.com.au.
He says the February/March floods would “certainly contribute to higher than expected price increases”.
Reinsurance rates increased during the December renewal season and also more recently in March, which was partly due to the recent disasters in Japan.
“A lot of [renewal talks] unfolding as we speak of the June cycle,” Guse said. “Therefore, this [NSW/Queensland] event means you are likely to see further increases in June.
“It will be a tax on policyholders, as insurance companies have to pass on these costs to ensure they make a reasonable return on their capital.”
Mr Guse says reinsurers “have not made much money in Australia” due to recent disasters.
“All of these events are increasing in frequency around the world due to climate change and Australia is not immune to this,” Mr Guse said. “Therefore, reinsurers need to more appropriately price risks that are obvious.”
Mr Guse made the comments after the release last week of a KPMG report on how Australian industry performed last year.
Although it has significantly increased its profits from $915 million in 2020 to $3.486 billion, there is little time left to rejoice as daunting challenges lie ahead.