Rising Claims Wipe Out Profits for Australian Insurers Despite Stronger Investment Returns
The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.
The Australian Prudential Regulation Authority (APRA) has released an industry update that revealed general insurers faced a $100 million underwriting loss in the first quarter of the year.
This was a significant drop from their earnings of $1.6 billion in the preceding quarter.
The primary reason for this loss is the increase in gross incurred claims, which rose 40.6% from $10.2 billion to $14.4 billion in the December quarter.
Impact of Gross Incurred Claims:
The $100 million underwriting loss can primarily be attributed to gross incurred claims costs, according to APRA. The sharp rise in claims costs has led to a significant reduction in the industry's net profit, down 18% to $1.1 billion from $1.3 billion in the December quarter. Gross earned premium also decreased by 0.4% to $16.4 billion.
Despite this, there was a notable increase in investment income, rising 107% from $1 billion to $2.1 billion. For the last twelve-month period to March, the industry saw an underwriting profit of $5.3 billion as compared to the preceding year. At the same time, the gross earned premium rose by 9.4% to $64.4 billion. The net profit also tripled to $3.7 billion from $1.3 billion.
Reasons Behind Insurance Industry’s Performance:
The rise in net profits of the Australian insurance industry can be attributed to many factors. Nearly all classes of businesses recorded premium increases. These were substantial increases compared to the prior year and were driven by stronger underwriting results and a recovery in investment income. Also, investment income recovered to $2 billion after experiencing a loss of $900 million in the previous year. It is worth noting that the increase in investment income was driven by an increase in interest income and unrealised gains from interest-bearing investments.
Despite the overall increase in profits, KPMG insurance partner, Scott Guse, says the March quarter numbers are "not surprising”. There are many weather-related events during that period such as smaller floods, storms, etc., leading to underwriting losses. For instance, quarter one of 2021 saw a significant number of specific events impacting the industry. However, Guse added that the insurance industry should increase its prices to cover the reinsurance costs going up, which is causing concern.
The Australian insurance industry’s insolvency profitability margin is in question due to issues highlighted by the APRA report. Due to the increasing costs and a declining margin, most insurers need an overhaul in their business models. The industry needs to focus on reducing excessive costs and improving operational efficiencies to maintain profitability, starting with a risk management evaluation that considers operational, technological, or strategic risks that drive the claims costs upward.
Published:Friday, 26th May 2023 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
In its recently released 2025 State of the Strata Market report, CHU, Australia's leading strata insurance underwriting agency, provides a comprehensive analysis of the current state of the industry. The report indicates that strata insurance premiums have experienced a modest increase of 2.8%, rising from an average of $954 to $981 per lot annually in the year leading up to June 2025. This increment is notably lower than the 14% surge observed in house insurance premiums during the same period. - read more
The Insurance Council of Australia (ICA) has recently called for substantial reforms to Victoria's strata legislation, citing a direct correlation between inadequate governance and escalating insurance premiums for residents. With approximately one in five Victorians residing in strata-titled properties, the need for effective management and oversight has become increasingly critical. - read more
Strata communities are at the forefront of Australia's resilience battle, facing escalating costs, declining coverage, and prolonged recovery periods following disasters. Strata Community Association Australasia (SCA) has expressed strong support for the Insurance Council of Australia's (ICA) recent call for coordinated, long-term resilience reforms to protect communities from these challenges. - read more
Allianz Australia has been honoured with the top accolade in the Comprehensive Home Insurance category at the 2026 Finder Product Awards. This recognition underscores the company's dedication to delivering high-quality insurance solutions tailored to the needs of Australian homeowners. - read more
Australian homeowners are facing a growing protection gap as escalating home insurance premiums render adequate coverage increasingly unaffordable. Recent data indicates that average home insurance premiums have risen by 16% over the past year, with some insurers implementing hikes exceeding 30%. - read more
The horizon of the insurance industry has undergone a transformative shift with the advent of digital technology. With a few clicks, consumers can navigate the once-complex world of insurance policies from the comfort of their home. The digital landscape for insurance services offers unprecedented access to information, comparisons, and instant communication, fostering a more empowered insurance client. - read more
Life insurance is a cornerstone of financial planning for Aussie families, offering protection and peace of mind. But what happens when the bustling flow of life brings changes? This is where a life insurance review comes into play. A life insurance review is a thorough analysis of your existing policy to ensure it aligns with your current life circumstances and financial goals. - read more
Life insurance can seem complex at first, but understanding the basics can help demystify this important financial product. At its core, life insurance is a contract between you and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon your passing, in exchange for premium payments. - read more
Life insurance is a fundamental component of a robust financial plan, yet its significance is often underestimated. It serves as a safety net, ensuring that your loved ones are financially secure in the event of your absence. Understanding life insurance is the first step towards safeguarding your family’s future. - read more
Life insurance and estate planning are critical components of financial security. They ensure that your loved ones are protected financially when you are no longer around. By understanding these tools, you can take significant steps to secure your family's future. - read more
Start Here !
Apply now for your free Insurance assessment and price comparisons!
Knowledgebase
Claim Adjuster: An insurance professional who investigates and evaluates insurance claims to determine the amount the insurance company should pay.
