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Pressures build in householders amid overall profit jump: Radar

Action to address issues in the loss-making householders class is a priority for the general insurance industry, which made an overall profit last financial year after investment results rebounded, the latest Radar report from actuarial consultancy Taylor Fry shows.

Overall industry profit rose to $4.6 billion, the highest in almost a decade and a jump from the $900 million profit recorded in each of the last three years, while return on capital was 14.2%, according to the report which draws on Australian Prudential Regulation Authority data and Taylor Fry industry analysis.

But the firm says that beneath the robust figures, affordability, impacted by inflation and climate risk, is the number one issue “striking the heart of everyday life” for millions of Australians and raising sustainability concerns for insurers.

The householders class recorded a $200 million loss last year, driven by an increase in catastrophic losses combined with claims inflation, despite rising premiums.

“The pressure is building for householders, with elevated inflation an ongoing hurdle, increasing the risk of underinsurance, if sums insured are not adjusted accordingly,” Taylor Fry Principal Win-Li Toh says.

The report identifies construction, motor parts and travel especially as key drivers of claims cost inflation in the consumer classes.

Direct insurers made a $4.2 billion profit after tax, up from $1 billion in the previous year. The underwriting result of $5.4 billion was largely unchanged, while investment income reached $2.7 billion compared to a $2.2 billion loss a year earlier.

Reinsurers recorded an after-tax profit of $400 million, up from a $100 million loss, with a rebound in investment income offsetting a weaker underwriting profit. Net premium reduced by $500 million as reinsurers became more selective about the risks covered, while net incurred claims remained steady at $2.7 billion.

Ms Toh says the investment contribution masks some of the underwriting challenges and issues around climate change, inflation, greater regulation and consumer trust and affordability.

Combined operating ratios in the householders class have topped 100% in the last three years, amid accelerating premium increases and stresses for insurers and consumers.

IAG has flagged it intends to increase premiums by 20%, and Ms Toh says it’s likely that other insurers will follow suit.

“Each year their premium increases, but each year insurers are losing money, so there’s great affordability concerns,” Ms Toh told “Insurance is not meant for the elite.”

Ms Toh says consumers in retail lines have become less trusting and more jaded following attention on insurance industry issues. That’s included claims handling complaints following natural catastrophes and Australian Securities and Investments Commission (ASIC) actions over pricing promises.

Scrutiny will pick up with the start of the Financial Accountability Regime and the parliamentary inquiry into insurers’ responses to flooding events.

“I actually think it’s an opportunity for insurers to really take ownership of the issues and improve the situation. The leadership vision in our industry has never been more important,” Ms Toh says.

“It’s time to grab the opportunity to implement change, and lead some of the difficult conversations that need to be had.”

The report is available here.