Insurers stay afloat despite a perfect storm

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Morningstar analyst Nathan Zaia said he expects reinsurance costs for IAG to increase 10 per cent in the 2023 financial year.

Suncorp’s management demonstrated quite some reluctance to talk about reinsurance costs on Wednesday when they updated investors.

“Clearly, there will have been a lot of recoveries against the program. For us, we’ll continue with the same strategy that we’ve always had with reinsurance … we will go through the renewal cycle but there’s not much more that we can say at this stage … we don’t know either,” Suncorp’s chief financial officer Jeremy Robson said.

However, he admitted the interest from global reinsurers had fallen from where it was a couple of years ago. But as this reinsurance is being increasingly used, so its cost will go up and this in turn will be passed onto customers by way of higher premiums.

There is already an affordability crisis among many living in lower lying flood prone areas – many of whom were not insured.

For those customers that still have cover, there is an expectation their premiums will rise when they look to renew their policy. But there is a limit to how much premiums can rise before people can no longer afford insurance.

Pricing customers out of the market is a recipe for shrinking a business.

The insurance industry has a long history of attempting to mitigate the chances of catastrophic weather events. It was warning of the dangers of global warming decades before most took it seriously.

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In more recent years the message from insurers has moved towards fortification and containment, for example, building more resilient housing and better levy banks.

But following two years of one-in-500 year flood events, the message from Suncorp chief executive Steve Johnston was more urgent.

He wants more than just an overhaul of planning laws and building permits, he is calling on the government to make home insurance tax-free to ease the affordability crisis spurred by rising premiums.

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