Climate change is set to cause more frequent, severe weather events. Consequently, QBE has increased its provision for catastrophic weather claims by about a quarter—an increase that’s likely to result in higher premiums.
QBE recently announced plans to set aside an additional US$685 million (around AU$888 million) for claims relating to catastrophic weather events in 2021 after surpassing its US$550 million cap in 2020 due to the severe bushfires and the unprecedented cyclone season in Australia’s northern hemisphere.
Accordingly, QBE’s interim chief executive Richard Pryce has no doubt that QBE would “drive appropriate margin expansion” in 2021, considering that it enhanced its reinsurance program that takes into consideration greater exposure to more severe and frequent weather events.
KPMG partner and insurance guru Scott Guse told Storm Assist that insurers might be forced to hike premiums or cut costs in order to pay for reinsurance so as to safeguard against mass claim occurrences.
“There are a number of levers that insurance companies can pull, pricing is the main one – they can increase prices to improve margin,” Guse told reporters.
“However, you can only use those levers too much before insurance becomes unaffordable or before your cost base is already at a rock bottom and you can’t reduce costs any further. At the moment, they have these levers they can use to maintain similar margins at this point in time. But in the future, who knows?
“Every year, we seem to have either cyclones or floods or bushfires that have created a level of reinsurance cost that has surpassed the actual premiums the insurers have collected from Australian businesses.”
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