Insurance premiums have increased significantly since 2019 as a result of the bushfires experienced in 2019/ 2020, the economic uncertainty created by COVID-19, large business interruption claims as well as falling investment returns on insurers capital base due to low interest rates. In addition, independently of insurers, the state Government has increased by one third the Fire Service Levy which is imposed on the gross premium of every insurance policy.
In a continuing trend, many of the large global reinsurers are increasingly removing themselves from liability for the more frequent and severe loss events occurring in Australia, so the cost of reinsurance, where the local insurers offload a percentage of the potential liability to offshore insurance companies in return for taking a proportion of the premium, is becoming more expensive for resident insurance companies. This means the amount of claims that need to be absorbed locally has been rising sharply as Australian insurers are left to pick up a greater proportion of the losses incurred.
These changes amount to a major structural shift in the way local insurers have been operating and, in view of the worldwide changes in the way insurance companies operate and the increasing proportion of liability for major events such as bush fires, floods, mice plague and business interruption, insurance claims will invariably have an increasingly detrimental effect on insurance premiums for years to come.