Households will be hit with double-digit percentage jumps for insurance for a second year as insurers restore profits after the industry's worst year on record for disaster claims, a survey finds.
Floods, hailstorms, and New Zealand's earthquakes took their toll in 2011, with QBE Insurance Group, Insurance Australia Group (IAG), Suncorp and Wesfarmers Insurance recently warning that their earnings would be cut as a result.
Now households will pay, with insurers expecting to hike premium rates by 13 per cent this year after lifting them by 10 per cent in 2011, an annual industry survey by JP Morgan and Deloitte shows.
Premiums for domestic classes of insurance are expected to rise by seven per cent, while commercial insurance premiums will increase by five per cent.
Owners of commercial property face premium increases of nine per cent.
Premium rate hikes in 2011 were not enough to offset insurers' surging costs from a deluge of disaster-driven claims and spiralling reinsurance premiums, JP Morgan's analyst Siddharth Parameswaran said.
'Whilst we've seen talk of rate increases for a while, it really hasn't been at levels which seem to have had enough of an impact to restore profitability.
'So the industry is ... flagging bigger increases for 2012. We will get them - domestic class led and in pockets of commercial classes where there is an absolute clear reason to do it.'
Big global reinsurance companies insure local players against losses caused by large natural catastrophes.
An overall increase in premiums of between two and three per cent is needed just to cover reinsurance costs, Mr Parameswaran said.
Profits in 2011 fell more for commercial classes of insurance than domestic lines, and a sharp rebound is expected by the industry this year.
The survey was based on unaudited data at June 30, 2011 from 28 industry participants including Wesfarmers' subsidiary OAMPS, but excluding insurance and giants QBE Insurance and IAG.
Since submitting their data, insurers have been hit by worse than expected claims numbers, higher reinsurance costs and declining bond yields causing investment revenue to fall.
Earlier this month Suncorp warned of a $120 million to $180 million cost blowout from natural hazards for the six months to December 31, 2011, and IAG said its reinsurance costs for 2011/12 would be as much as $100 million higher than a year earlier.
QBE's shares tanked by 12.7 per cent on January 12 after it warned its annual profit would be halved and its final dividend cut by 62 per cent.
A week later Wesfarmers warned of a 74 per cent drop in interim earnings from its insurance division.
Insurers' profits will probably return to more normal levels in 2013 thanks to premium rises and cost cuts, Mr Parameswaran said.
'For 2013 financial year, we are expecting them to get towards what they're targeting on a forecast basis.'
QBE, IAG, Suncorp and Wesfarmers will report earnings in February.
