Australian insurers’ ‘cyclical’ profits often affected by uncontrollable entities –  ICA

Rise in inflation and reinsurance costs are driving up expenses for insurers into 2023.

Last year, insurers disbursed $36.5b in claims, aiding countless Australians in recovering from unforeseen events, the Insurance Council of Australia (ICA) said in a statement.

“Insurer profits are cyclical and often impacted by factors outside of the control of the businesses, including extreme weather events,” the ICA said.

Following a series of significant extreme weather occurrences since the Black Summer bushfires, both the insurance sector and its customers have faced numerous challenging years. 

In 2022 alone, over 300,000 claims related to disasters were filed due to four declared insurance events across the nation, resulting in over $7b in insured losses.

The persistent rise in inflation and substantial increases in reinsurance costs are driving up expenses for insurers into 2023. 

Home insurance, in particular, faces significant pressure; in 2022, insurers' costs exceeded collected home premiums by $1.04 for every dollar.

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The sector values collaboration with the Australian Securities and Investment Commission (ASIC)to gain a clearer understanding of their expectations for general insurers' obligations. 

Notably, recent interim stop orders on certain pet insurance lines were lifted within 24 hours, following prompt engagement by affected businesses with ASIC to make necessary changes. 

The swift resolution of these interim stop orders was appreciated by the sector.

Insurers must prudently manage costs during periods of volatile weather to ensure affordability for as many Australians as possible. 

Taking into account ASIC's suggestion on resources, further engagement with the regulator will be pursued to determine the appropriate level of permanent claims staffing, bearing in mind that any sustained increase ultimately impacts customers.