Have you noticed that insurance is more expensive, not just a little, but a lot?
Maybe you have been fortunate enough to escape the increases but for the vast majority of Australian business premiums have risen over the last four years.
How do we know this? Because the bean counters at APRA track it …. and the insurers watch the results like a punter on cup day and right now they are losing their shirt!
Using whole of Australia numbers, from December 2016 to December 2020 and a rolling 4 quarter average premium the tale of the tape looks like this for the main classes of insurance a business such as yours might buy
- Property insurance plus 35.7%
- Public and products liability plus 25.2%
- Professional Indemnity plus 57.0%
- Home insurance plus 17.3%
- Commercial Motor plus 13.9%
What is driving this?
Well lots of factors but the one inescapable reality is ….. more claims, increased severity of those claims and more cost to resolve those claims. Its not just bushfires, hailstorms and floods. Its increased litigation, increased fines, increased regulation from government and the list goes on.
All of this means the insurers aren’t making money, now, and haven’t for a while. It’s a complicated thing to work out profitability for an insurer but as a ‘rule of thumb’ insurers will use a calculation called a ‘combined ratio’ which is basically all of the premium they collected versus the claims they are paying out (and are going to pay out) plus the costs of running their business. There is a bit more to the ratio but the detail is not nearly as important as the result.
Lets take property insurance as an example. The average combined ratio using the same December 2016 to December 2020 period across all insurers was 105.81%. What that means is that for every $100 the insurer took in premium it cost them $105.81 for the thrill! Remember this is the average over the last four years and insurers take in billions in premium each year. By way of example the total amount of property insurance (fire/ISR) written each year is $5.706 billion. That’s a $331 million loss just in the last 12 months! For PI Insurance the combined ratio is 110.96%!
I know, boo hoo, its not like they can’t afford the tissues to dry their eyes. Here’s the problem though. Two things are happening now and will continue to happen moving forward. Premiums will grow and insurers will be more and more picky about which risks they take on.
This is where having a quality broker can be the difference. Two factors above all else make the difference, and they both involve your broker. Firstly deeply understanding your business and uncovering where your risk is and working to reduce it is job number one. Second is structuring your insurance program, presenting it to the insurance market and then fighting for you to make sure you get the outcome you deserve is job number two.
At Good Cover this is what we do. Were passionate about your business and we know the insurance marketplace. We love this, it’s what we do …. and now we would like to partner with you.
- Insuring your home may get harder and more expensive as climate change increases risks – ABC News
- General Insurance Insights Dashboard – KPMG Australia (home.kpmg)