Batten down the hatches, says ICA

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15 December 2008

Weather is set to dominate insurance trends in coming years, with the proportion of weather-related claims increasing more than 250% since 2000, an Insurance Council of Australia (ICA) report has revealed.

ICA’s latest Industry in Focus report says severe weather poses an escalating risk for the general insurance industry and wider community.

In 2007, weather-related events caused more than 31% of general insurance claims, compared with 12% in 2000. In the past financial year total industry loss ratios climbed sharply by eight percentage points to 65%.

ICA expects recent adverse weather-related claims costs to “place upward pressure” on premiums in the short term.

In the longer term, an increase in the severity of weather is likely to drive up claim costs and have a “significant effect” on premiums.  

ICA says the industry will need to promote household and business insurance cover because “larger policy pools serve as a buffer and constraint to upward pressure on average premiums”.

Greater insurance cover will boost community resilience and aid residents in recovery and management of extreme weather events, the report says.

Total average claim values increased more than 4% a year over the eight years to June 2008, reflecting increases in value and the quantity of household assets and durable goods. Total claims frequency bucked the trend by falling 30% during the period.