What You Should Know About the Profitability of Insurers


The COVID-19 epidemic has wreaked havoc on a variety of sectors. While Australia has avoided thevery serious GDP reductions that were observed in some nations, such as France and the United Kingdom, Federal Treasurer Josh Frydenberg has estimated that Australia’s economy will be roughly 6% reduced by the end of 2020/21 than the previous year. Let’s look at how profitable insurers were during the pandemic.

While many businesses have suffered, insurers in Australia have had their worst profit in 20 years as a result of a notorious year of natural catastrophes, weather risks, and uncertain global financial markets.

According to a new industry Optima study released by the actuarial firm Finity, insurers’ return on equity (ROE), or profitability, has decreased to 4%, down from 13% in the previous year. Furthermore, these data do not reflect the full scope of the COVID-19 pandemic, which has yet to fully reveal itself.

These market conditions are contributing to a ‘hard’ insurance market, often known as a ‘firming of prices,’ and insurance customers should be aware of this.

What is a hard insurance market, and how does it impact the profitability of insurers?

A ‘hard market,’ in the insurance sector, refers to market changes that result in higher insurance premiums and less capacity for most coverage. A soft market, on the other hand, is characterized by cheap premium rates, flexible contracts, and a wide range of coverage options, including sole trader insurance.

What does the insurer’s profits look like in this tough market?

As insurers abandon unproductive market areas, hard market circumstances mean less competition for their company, resulting in lower insurer profitability. As a result of the decreased competition, insurance prices and excesses have risen.

The premiums will be the highest for new enterprises, those with a bad claims history, or those who need a policy changed from the norm, with some businesses potentially being unable to find protection.

According to a recent survey by The Australian Industry Group, 53.6 percent of firms polled have had difficulty obtaining insurance, with high premium growth being the top issue for 55.6 percent of these enterprises. The second most common issue was ‘other’ (16%), which was cited by the majority of firms as a lack of competition and rates to select from.