Australians to pay price for world's biggest houses
The country's biggest home insurer, which owns GIO and AAMI, outlined the planned "high-single-digit" increase on Wednesday after saying profits from its general insurance arm surged 79 per cent to $883 million.
Earnings across the entire group slumped by 32 per cent to $491 million over the year to June, dragged down by a $632 million loss in its "non-core" bank.
Although the planned rise in premiums is slower than the near-15 per cent annual increases of recent years, it underlines the surging cost of home insurance.
Chief executive Patrick Snowball justified the increase by saying insurers still faced higher costs from reinsurance - premiums charged to local underwriters on the global market - after a recent spate of natural disasters.
He also said the full cost of insuring large Australian homes was not yet reflected in premiums.
"Australia has the biggest houses in the world, and they are located in some of the highest-risk areas of the world," Mr Snowball said.
"Increasingly, we are seeing a high level of under-insurance both on the premises themselves and more importantly the contents, and this is something we need to reflect in the premiums we charge."
The comments came after Mr Snowball unveiled results in which general insurance was the star performer for the group.
While its "non-core bank" that houses bad commercial property made a $632 million loss, earnings in the core bank were flat at $289 million. Its life insurance division was hit especially hard by industry-wide trends, with profits plunging 76 per cent to $60 million.
As previously announced, it will pay a special dividend of 20¢ a share, on top of a final dividend of 30¢, both to be paid on October 1. The company's shares rose 1.5 per cent to $12.60.
Suncorp and IAG control more than 50 per cent of the home insurance market, according to estimates from Nomura analyst Toby Langley.
Mr Langley said home insurance costs had been pushed up by a spate of floods, cyclones and other natural disasters in recent years.
"The impact of higher-catastrophe experience since 2007, combined with rising reinsurance costs, means that home insurance premiums inevitably had to rise if the insurers were to continue offering secure cover for homeowners on a viable basis," he said.
Mr Snowball said while average premiums had risen, they had also fallen significantly in some flood-affected areas of Queensland after local authorities built levees and more residents were encouraged to move away from flood plains.
But some experts say the market dominance of Suncorp and IAG allows them too easily to push up prices.
An analyst at CLSA, Jan van der Schalk, said the concentrated nature of the market gave IAG and Suncorp considerable scope to increase prices and boost their bottom lines. Despite this, he said insurance profits tended to rise in anticipation of increased claims, and prices were likely to fall in two to three years.
Frequently Asked Questions about this Article…
Suncorp says it needs to lift home insurance premiums because global reinsurance costs have risen after a spate of natural disasters, and the full cost of insuring Australia’s very large homes isn't yet reflected in current premiums. The group also flagged rising under-insurance of premises and contents as a reason to adjust prices.
Suncorp outlined a planned 'high-single-digit' increase in home insurance premiums this year. The company noted this is slower than the near-15% annual rises seen in recent years.
Reinsurance premiums are charged on the global market to local insurers. When reinsurance costs rise after big catastrophe years, local insurers like Suncorp pass some of those higher costs on to customers through higher home insurance premiums.
Yes. Suncorp's CEO highlighted a high level of under-insurance for both properties and contents, and said premiums need to better reflect the true cost to insure larger homes and their contents.
Suncorp's general insurance arm reported a strong result, with profits up 79% to $883 million. But group earnings fell 32% to $491 million, pulled down by a $632 million loss in its non-core bank. The core bank earnings were flat at $289 million and life insurance profits fell 76% to $60 million.
According to Nomura analyst Toby Langley, Suncorp and IAG control more than 50% of the home insurance market. Some experts say this market concentration gives them scope to lift prices, though competitive and catastrophe cycles also influence pricing.
Suncorp announced a special dividend of 20 cents a share on top of a final dividend of 30 cents a share, both payable on October 1. After the results, the company's shares rose about 1.5% to $12.60.
Analysts in the article said premiums have risen because of higher catastrophe experience and reinsurance costs. However, some expect insurance profits to peak ahead of claims and predict prices may fall again in two to three years. Local risk mitigation, such as levees in parts of Queensland, has already helped reduce premiums in some flood-affected areas.
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