The head of Wesfarmers’ insurance arm has defended the local industry in the face of premium rises of as much as 15 per cent for home insurance.
Wesfarmers Insurance managing director Robert Scott said Australia’s insurance industry was in a strong condition given a year of a record numbers of natural disasters that forced up premiums and squeezed margins.
Earthquakes in Japan and New Zealand made 2011 the insurance industry’s costliest yet worldwide for natural disaster losses, at $US105 billion – exceeding the previous record of $US101 billion in 2005 – the world’s largest reinsurer, Munich Re found.
This week Wesfarmers became the latest of a string of insurers to slash its earnings forecasts.
The insurance division said earnings before interest, tax and amortisation for the half year to December 31, 2011 would be $23 million, down 67 per cent from the $70 million in the same period the year before.
Some $2 billion was wiped off the market capitalisation of the nation’s largest general insurer, QBE, over the past 10 days after it said expected profit would fall up to 50 per cent.
Suncorp has warned it expects $180 million to be wiped off its bottom line, while Insurance Australia Group said it has added an additional $500 million to its reinsurance provision for 2012, to bring it to $4.7 billion.
Mr Scott said the “unprecedented” level of natural disasters and higher reinsurance costs – estimated to have risen by between 20 and 50 per cent during 2011 – meant local insurers would have to raise premiums.
The Insurance Council of Australia (ICA) has said every household nationwide could expect a rise of up to 15 per cent in home insurance premiums.
“What we need to make sure, going forward, is that there is an appropriate return on capital,” Mr Scott said.
Local insurance claims costs hit $4.4 billion last year because of severe flooding in Queensland, Cyclone Yasi and the Melbourne storms, according to ICA data.
“If you ever want to see a stress test for an industry’s capacity to deal with extraordinary circumstances, 2011 was it,” ICA chief executive Rob Whelan said.
“One would expect it would be highly unlikely to see that number of disasters happening in that timescale ever again in our lifetime.”
He said the industry was working with the federal government to improve building regulations and to ensure fewer houses were built in vulnerable areas like flood plains as part of the government’s Natural Disaster Insurance Review.
