Aussies Insurance Rates to Drop in 2015

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Wednesday, January 28th, 2015
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Australians will pay less for insurance in coming years as the economy slows while insurers will face tougher competition for business, global financial services giant JP Morgan and actuarial consultancy Taylor Fry say.

“The outlook for the next couple of years suggests that … profitability has peaked about now,” JP Morgan’s lead insurance analyst Siddharth Parameswaran told reporters on Wednesday.

“We think the industry faces some tougher times but (it’s) some good news for consumers.”

An economic slowdown in 2015 is forecast to coincide with weaker underwriting profits for insurers, which is the premiums paid by customers minus claims and expenses.

In this climate, Australian insurers face more competition from banks, premium rate pressures, low investment yields and difficulty expanding into new insurance classes, he added.

But the prospect of slower growth in the insurance sector would be unlikely to see more mergers and acquisitions in Australia.

“On a global level, that is exactly what we’re seeing. But one of the problems in Australia is that we already have a highly consolidated market,” Mr Parameswaran said.

He added that insurance sector profitability was likely to have peaked in the second half of 2014, with Brisbane’s October hailstorms the only major natural disaster.

“My view is the 2014 second half is about as good as it gets on an underlying basis,” he said.

Uncertain economic growth and falling commodity prices would also hit demand for insurance from the commercial sector.

Oil and gas producers, too, would be less likely to buy risk-intensive insurance as the construction phase of major projects wanes.

 

By Stephen Johnson
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