The recent floods have raised the cost of home repairs, which could affect the profitability of insurers.
Insurers are facing pressure from their reinsurers during margin negotations.
Some analysts believe the reinsurers might tighten some of their coverage or reduce their levels of reinsurance.
Despite the pressure on their margins, insurers can still increase their customers’ premium rates to cushion the impact of the rising costs.
Since February, Australia’s east coast has been ravaged by flooding. It’s estimated that the damage caused by the disaster could reach $3 billion.
According to a consumer advocate, the cost of home repairs has been significantly higher than the official inflation rate.
If you’re planning on making a claim for home repairs, the cost of these expenses will be significantly higher than it was last year.
Reinsurance companies in Australia offer their customers a type of cover known as aggregate cover, which allows them to switch on their coverage following a series of smaller natural disasters. However, this type of cover has become uneconomic for most of the firms due to the number of major weather events that have affected various parts of the world.
Some local insurers might choose to increase their insurance prices due to the increased catastrophe risk they face.
Analysts noted that the rising cost of capital has been passed on to the insurers. This could mean that the premium rates for individual policies would increase.The capacity for volatility management products would be reduced.
Before the floods, Suncorp claimed that its cost-saving measures had helped offset the rising prices of home repairs. However analysts noted that the company was now facing a serious challenge due to the rising prices of various goods and services.
Concerns about the rising cost of insurance have prompted many consumers to ask about the affordability of their policies. The rising inflation could make them more sensitive to the premium increases.
It is unlikely that the insurance industry would be able to sustain its impressive top-line growth rate due to the rising costs and the recent natural disasters.
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