An insurance boss has called for the industry to correct the inadequate pricing on catastrophe exposure for residential strata.
Peter Jones, head of SME underwriting with Zurich
Australian Insurance, warned if residential strata continue to be under-priced, it will have a significant impact on the market around availability and affordability.
Jones said under-pricing is particularly an issue on the east coast where premiums are “unsustainably low”.
He said all insurers are under-pricing catastrophe exposure for residential strata and that almost all of the residential strata insurance is underwritten via underwriting agencies backed by local insurers.
Being a step removed from the insurers’ usual underwriting and pricing practices may have resulted in less scrutiny on actuarially-based pricing and underwriting governance, Jones said.
“Underwriting governance, actuarial pricing and catastrophe exposure management is crucial to achieving long-term sustainable profitability for any portfolio of business.”
While exposure to cyclone risk accounts for much of the increased North Queensland residential strata premiums, Jones said climate change is resulting in more severe weather events generally, which are causing more damage.
“We believe we should be looking at a more sustainable solution for pricing residential strata than the short-term ‘match the market’.”