Premium impact from floods is inevitable: KPMG

The latest NSW/Queensland flood catastrophe, one of the worst to hit the east coast in recent years, will have an “inevitable” impact on premiums, KPMG Insurance Partner Scott Guse says.

He told insuranceNEWS.com.au insurers will most probably have little choice other than to increase rates, as their reinsurance costs have been going up because of the growing frequency and severity of natural disasters.

The NSW/Queensland floods, with losses already exceeding $2.42 billion from more than 173,000 claims lodged to date, is adding to the pressure on reinsurers to charge more at upcoming renewal talks with Australian insurers.

“We’re probably going to see a combination of specific price rises for those riskier policies but also across-the-board price rise due to increasing reinsurance costs,” Mr Guse told insuranceNEWS.com.au.

He says the February/March floods “certainly would contribute to a bigger price rise than was anticipated”.

Reinsurance rates went up at the December renewal season and also most recently in March, which was due partially to recent catastrophes in Japan.

“A lot of [renewal talks] are taking place as we speak now for the June cycle,” Mr Guse said. “Therefore this [NSW/Queensland] event means that you’re likely to see further increases in June.

“It’s going to be an impost for policyholders because insurance companies do need to pass on those costs to ensure that they make a reasonable return on their capital.”

Mr Guse says reinsurers “haven’t been making a huge amount of money in Australia” due to the recent catastrophes.

“All these events are increasing in frequency globally due to climate change and Australia is not immune to that,” Mr Guse said. “Therefore, reinsurers need to price more appropriately for the risks that are evident.”

Mr Guse made the comments following the release last week of a KPMG report on how the Australian industry performed last year.

While it increased its profit substantially, from $915 million in 2020 to $3.486 billion, there is little time to celebrate as daunting challenges lie ahead.

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