Car and home insurance premiums to rise 3 per cent

If you're under a tight budget and looking for car insurance, chances are you're not going to like copping a 3 per cent rise to your premiums in 2016. 

But a 3 per cent increase, which is at the top of the 2 to 3 per cent inflation target, is the expected average price rise for motor cover as insurers look to beef up profit margins following a year of expensive claims and stiff competition. 

It's no surprise insurers will be looking to recoup some of their losses by increasing motor insurance premiums after a ...
It's no surprise insurers will be looking to recoup some of their losses by increasing motor insurance premiums after a spate of natural catastrophes in 2015. 

It is a dramatic change to last year's prices, when the average policy dipped 2 per cent, according to new research by JP Morgan and consulting firm Taylor Fry. 

"The last two years in motor were pretty soft. A big part of it is competition," Siddharth Parameswaran, senior insurance analyst, at JP Morgan, said about premium prices. 

A 3 per cent increase, which is at the top of the 2 to 3 per cent inflation target, is the expected average price rise ...
A 3 per cent increase, which is at the top of the 2 to 3 per cent inflation target, is the expected average price rise for motor cover as insurers look to beef up profit margins this year. Photo: Keith Austin

"These rate reductions in 2015 I think were in response to try and solidify market share, and prices have come back a fair way," he said. 

And prices are set to rise further. A spate of natural catastrophe claims from events such as the Anzac Day hailstorm in Sydney in 2015 and category five Cyclone Marcia have triggered billions of dollars in costs for insurance companies. 

At the same time, insurers have been hit on the investment income front after suffering low returns from volatile investment markets. 

Property cover for Australian households are expected to be similarly hit with an average 3 per cent rise in premium costs. 

Property cover for Australian households is expected to be similarly hit.
Property cover for Australian households is expected to be similarly hit. Photo: Supplied

Six years ago, companies such as IAG and Suncorp were reaping double-digit price increases from new policies as consumers forked out thousands for home and motor cover. But their fortunes were reversed in the following years with property premiums growing at an anaemic 1 per cent last year. 

Mr Parameswaran's comments come after JP Morgan and Taylor Fry found claims inflation for households hit 7 per cent in 2015, up from the 4 per cent predicted in 2014's General Insurance Barometer survey.

So it comes as no surprise that Australian insurers will be looking to recoup some of their losses, after the industry recorded zero per cent growth on average across personal lines businesses last year. 

"Given the tough profit trends in 2015, we're seeing consistency in the key concerns from underwriters, with the top issues remaining the same as last year – competition, rates and capacity," Taylor Fry principal Kevin Gomes said.

"In addition to the pressure from events, profitability has also been impacted by rate pressures, particularly in commercial classes but we're looking at positive developments in both domestic and commercial classes for the coming year."

According to the research, 56 per cent of insurers pointed to competition as their biggest concern as they navigate a tough market in 2016. 

Not far behind were worries about technology, with 44 per cent pointing to issues such as cyber risks and driverless cars potentially changing the face of the industry. 

Reinsurers flagged capacity and competition as their primary concern, followed by regulatory considerations and the overall investment environment.

0 comments