Climate change could result in more frequent and severe weather events. As a result, QBE has increased its allowance for catastrophic weather claims by almost a quarter – a hike that could lead to higher premiums.
QBE announced it would set aside US$685 million (approx. AU$888 million) for catastrophic weather claims for 2021 after exceeding its US$550 million cap last year due to Australia's severe bushfires and the northern hemisphere's worst hurricane season on record.
QBE interim chief executive Richard Pryce told Brisbane Times he was confident that QBE could “drive appropriate margin expansion” this year, given its boosted reinsurance program that considers greater exposure to more frequent and severe weather events.
KPMG partner and insurance expert Scott Guse said insurers might need to increase premiums or reduce costs to pay for reinsurance to protect them from mass claim events.
“There are a number of levers that insurance companies can pull, pricing is the main one – they can increase prices to improve margin,” said Guse, as reported by Brisbane Times.
“However, you can only use those levers too much before insurance becomes unaffordable or before your cost base is already at a rock bottom and you can't reduce costs any further. At the moment, they have these levers they can use to maintain similar margins at this point in time. But in the future, who knows?
“Every year, we seem to have either cyclones or floods or bushfires that have created a level of reinsurance cost that has surpassed the actual premiums the insurers have collected from Australian businesses.”