The latest ICA report highlights a paradox: despite escalating premiums over recent years, there's been no corresponding boost in profitability for insurers.
"The past catastrophe season experienced a notable increase in claim volumes compared to the previous year, indicating a broader range of homes, businesses, and individuals affected by extreme weather," notes the 2023-24 report. "Even though the intensity of these weather events was lower, which reflected in the flat incurred costs and reduced average claim costs, the higher volume of claims underscores the widespread community impact."
Cyclone Jasper and three major storms were the key players in the 2023-24 catastrophe season, generating a total of 156,802 claims with an average cost of $14,000 per claim.
The most significant financial blow came from the Christmas storms, amounting to $1.33 billion in claims. This was followed by claims from Ex-Tropical Cyclone Jasper at $357 million, the severe storm in NSW/Queensland in April at $280 million, and the Valentine's Day storm in Victoria at $215 million.
Flooding was a consistent theme across these events, highlighting its significant threat to Australian communities. The report emphasizes, "Floods have once again been a major contributor to the costs of this catastrophe season. With an estimated 1.2 million properties facing flood risk, flood remains Australia's costliest natural hazard."
While insurance provides financial relief, it isn't a comprehensive solution to flood risks. The ICA urges that addressing flood and other natural perils should be a primary focus for all levels of government to enhance insurance affordability and safeguard communities. The call to action includes strategic planning to prevent new constructions in vulnerable locations, enhancing building resilience against extreme weather, and removing state taxes on insurance.
However, the ICA cautions that even if these policies were enacted immediately, their benefits would surface only in the medium to long term. "Current and effective policy interventions to assist Australians grappling with affordability need to address the core risk issues rather than just high premiums," the report advises. "Effective support measures must also be carefully targeted to minimize adverse impacts on other consumers."
The insurance industry's profitability is critical to attract and sustain capital investment and reinsurance, ensuring a viable and robust sector. Reflecting on the past decade, the costs associated with extreme weather have consistently driven up premiums. However, there has been no correlated improvement in insurer profitability.
The report, citing Australian Prudential Regulation Authority data, reveals that insurers’ profits, which were nearly $5 for every $100 in premiums from 2012 to 2020, have dwindled to an average of $1.50.
For further details, you can access the full report here.
