Insurance premium increases expected to continue into 2023

Inflationary pressures at present are contributing to a spike in the cost of insurance claims, according to Mr Travis Wendt, head of placement at Honan, an insurance broking group, in a post on the company’s website.

He added, “We do not expect inflationary pressure to lead to another hard market, but it will prolong rate increases for the remainder of 2022 and potentially into 2023.”

Factors such as the COVID-19 pandemic, supply chain disruptions, the increased cost of raw materials and labour, the recent flood events in Queensland and New South Wales, and the war in Ukraine have all contributed to these inflationary pressures.

Although these events impact earnings and not capital, their contribution to the increased cost of claims is factored into insurers’ pricing models.

Mr Wendt said, “In general, the cost of an insurance claim has risen by around 5% and when considering the increased price of raw materials, labour, and freight, this can be as high as 10%. As such we are seeing these costs passed on – either partly or in full to policyholders. At Honan, we had already observed a slowdown in pricing increases as insurers cautiously exited a mindset of remediation into one of growth.

Looking ahead

Mr Wendt says that insurers will continue to focus on natural catastrophes and the price and amount of insurance they offer for ‘high risk’ businesses.

He also said, “Clients deemed as ‘low risk’ will benefit from greater market competition and will experience lower rate increases (if at all). For the right client, insurers are open to offering long-term agreements as a means to secure profitable business. Clients that are categorised as ‘medium risk’ can expect rate increases of up to 10%. For clients who have lodged claims or where there is little evidence of risk management, insurers will be less willing to underwrite risk, leading to higher rate increases. In extreme cases, some clients have elected to self-insure portions of their programme to preserve cash flow.

“We expect current conditions to continue for the remainder of 2022 and perhaps the first half of 2023, depending on insurers’ full-year financial results.”


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