Home and car insurance tipped to rise 4 per cent in 2017
Home and car owners face a 4 per cent hike in their insurance bills this year, according to new industry predictions, as insurers seek to pass on higher costs to customers.
After several years of slower growth in premiums, a new report from JP Morgan and consultants Taylor Fry predicts prices will rise briskly for home and motor insurance in 2017.
Based on a survey of underwriters, brokers and reinsurance companies, it says insurers will seek to push through average premium increases of 4 per cent, up from 3 per cent lift last year, as profitability in the industry also lifts.
Such an increase, if it occurs, would especially benefit Suncorp, which owns the AAMI, GIO and Bingle brands, and Insurance Australia Group, which sells insurance under names including NRMA, RACV and CGU.
While a 4 per cent increase would be more than double the economy-wide inflation rate of just 1.5 per cent, JP Morgan analyst Siddharth Parameswaran said the premium increases mainly reflected higher claims costs for insurers.
The report said claims inflation for home insurance had jumped to 12 per cent last year, while the cost of motor insurance claims increased to 5 per cent.
Aside from rising premiums, the increase in global bond yields in recent months should also benefit insurance companies, by lifting the returns they make from shareholder capital and funds from policyholders.
“Profitability for the sector is improving, but it’s improving very slowly,” Mr Parameswaran said.
The predictions were included in the General Insurance Barometer report, which also said the industry expected a steep rise in premiums on compulsory third party (CTP) insurance in NSW, which covers drivers for damages claims on behalf of people who are injured or killed in car accidents.
CTP premiums in NSW were expected to jump by 13 per cent this year, it said, after a blowout in claims in recent years that the state government is acting to curb.
This lift in claims inflation for home and motor cover has occurred even though consumers are not making more frequent claims on these types of policies, and the report said last year was “relatively benign” for natural catastrophes.
Mr Parameswaran said the housing construction boom had led to shortages of some suppliers, putting upward pressure on costs for home insurance claims.
Global shifts in financial markets are also tipped to act as a tailwind for insurance companies, which benefit from rising interest rates.
In recent years, the ultra-low rates and bond yields has led to a flood of capital into insurance, leading to stiff competition that has prevented big price hikes.
The report noted that in the US insurance companies had a record $US680 billion in surplus funds last year, as more capital was attracted into the industry in search of a return.
“There is a lot of capital in the industry which is seeking a return,” Mr Parameswaran said.
Since August, global bond yields have risen in anticipation of more interest rate hikes from the US Federal Reserve, and markets have pared back bets that the Reserve Bank will cut official rates this year.