KPMG says it “sees no reason” not to expect another 10% rise in premiums next year across the industry, and in particular for home and motor policies. 

Earlier this year, KPMG had forecast a 2023 rise in premiums of 10%. 

KPMG Insurance Partner Scott Guse tells insuranceNEWS.com.au that is likely to be repeated next year as insurers are still struggling to improve the profitability of home and motor policies despite the premium increases that they have pushed through in the last 12 months. 

“Insurers underwrite approximately $24 billion of premium across these two classes business, yet the profitability of them in total is only around $100 million,” Mr Guse said. 

Home cover continues to be loss making, he says, losing $321 million for insurers over the last 12 months on the back of an annual $275 million loss in the previous year.  

Inflation impacts on products, materials and labour have significantly increased, increasing claim costs, and along with rising reinsurance costs has “consumed all the premium increases insurers have charged over the year”. 

Motor is producing a “small profit” of $408 million, he says, which is down on $688 million a year earlier.  

An increase in the number of accidents as more drivers venture back onto the roads post covid, combined with inflation, has increased claim costs, Mr Guse says. 

Last year, a 10% increase in gross written premium (GWP) on the back of higher premium prices mitigated increased claims costs and fuelled a 42% rise in profit from direct to a five year high of $4.95 billion. 

KPMG says the cost of insurance faces more upward pressure from worsening natural hazards, reinsurance costs, inflation, supply chain issues and labour shortages, and that will see average premiums rise at least 10% throughout 2023. 

Rising temperatures mean the size and the severity of natural disasters will increase and locations once considered lower risk are now being updated in insurers’ and reinsurers’ pricing models. 

“The bottom line is more impact to our hip pocket when we come to pay for our insurance policies,” Mr Guse said.  

“Australia is now entering an El Nino weather system. It brings to the forefront once again, the importance of disaster resilience and mitigation for the insurance industry and the customers they protect.” 

KPMG outlined the top 10 emerging trends that will shape and influence the industry, topped by resilience. Improving resilience to extreme weather events is a key focus for the industry and is “seen as a must” in ensuring insurance remains affordable, it says, noting industry calls for increased government investment. 

Disaster relief spending is “too often an afterthought in Australia,” and a more forward-thinking approach to managing catastrophe risk is required, such as reviewing land use and amending building codes. 

The top ten trends were listed as resilience, reinsurance, technology modernisation, ESG (Environmental, Social, Governance), simplification and cost optimisation, changing customer expectations, cyber, data, IFRS 17, and regulatory and compliance transformation. 

In the year to March 31, GWP rose 10%, with all lines of business higher except CTP and Professional Indemnity. Underwriting profitability was $5.3 billion, up 12%. 

However for Australian insurers, reinsurance costs have risen much faster and higher than gross written premium, hurting profitability. 

“Insurers have and will continue to pass these increased reinsurance costs on to customers which will contribute to the anticipated 10% increase in average premiums that we expect,” KPMG said.  

See the KPMG research here.