With the persistence of the COVID-19 pandemic and extreme weather events, there have been some changes in the Australian property and casualty (P&C) insurance industry. As of March 31, 2022, Australia had 92 licensed insurers, compared with 115 five-years-ago, according to S&P Global Ratings (S&P).
The recently published S&P Global Ratings' (S&P) Insurance Industry and Country Risk Assessment delved into factors impacting the P&C insurance industry, such as catastrophes, reinsurance costs, claims inflation, and investment losses from higher interest rates.
It found that insurers in Australia have been particularly effective in managing large claims and exposure to natural peril and catastrophe events through reinsurance. However, catastrophe intensity has worsened in recent years, notably the February/March 2022 flooding in southeast Queensland and New South Wales (NSW) – deemed the costliest flood in Australian history. As a result, higher premium rates were passed on to policyholders, while excess claims were shared with reinsurers.
With climate change expected to result in more frequent and severe weather events, S&P forecasts continued upward pressure on reinsurance prices for property lines and across aggregate excess of loss protection covers, as well as higher reinsurance prices in markets other than Australia.
Read more: Protecting P&C policyholders
Focusing on the COVID-19 pandemic's impact on the Australian P&C insurance industry, S&P's report stated that the lingering effect of the pandemic had increased repair costs through supply chain delays and added costs, while state-government-imposed quarantines and distancing requirements have reduced labour availability.
“These factors are also contributing to broader inflationary pressures across the economy. Heightened market volatility with various strains of the coronavirus is also hampering economic growth and pushing up inflation – the later affecting interest rate expectations. Some claims are also yet to be resolved – these relate to business interruption and specifically whether this was to be captured and covered by policies,” the report said, adding that real GDP growth in Australia will most likely move from 4.7% in 2021 to 4.0% in 2022, reflecting higher interest rates as the central bank aims to curb inflation increase.
Additionally, S&P expects solid head-line growth in gross written premiums of about 6% per year for P&C insurers across personal and commercial lines, reflecting higher pricing for risk, including catastrophes and claims inflation supplemented by moderate unit growth off the back of continued modest GDP growth.