While much has been made of premium rate increases continuing throughout 2018, a stronger economy is also set to benefit the insurance industry, an expert has said.
Siddharth Parameswaran, J.P. Morgan insurance analyst, said that not only will prices rise this year but demand will also increase as the Australian economy becomes stronger over 2018.
“The economic indicators overall could be favourable for insurers,” Parameswaran said. “The economy looks reasonably robust and there could be an increase in demand for insurance as a result – that comes out of this, particularly on the commercial insurance side.”
The 2017 J.P. Morgan and Taylor Fry General Insurance Barometer found that Australia had been a “relative outperformer” in economic terms when compared with other developed economies throughout 2017. It saw modest real GDP growth in the first three quarters of the year, with J.P Morgan economists estimating a “positive but modest level of growth” for the final quarter and “a stronger growth picture in Australia in 2018.”
Parameswaran said that the industry has often relied on growth within the mining sector to push demand on the commercial side. However, now he notes that growth from the non-mining sector is helping buoy the industry and with resource prices rising, there should be further benefits.
In addition, the report notes that average weekly earnings rose 2% in the year to May 2017 which was at the lower end of recent historical levels and could be a slight negative for the workers’ compensation market as premiums are levied as a percentage of wage roll.
“However, for other classes, it will likely have a positive effect to the extent that the wage components of repair costs could increase at a slower rate in short tail lines, and costs of compensation in court awards (where the award takes into account salary levels) could be subdued in long tail lines,” the report states.
Parameswaran noted that while 2017 was marred by a spate of natural catastrophes both at home and abroad, Australian firms should benefit more than their global counterparts over the course of 2018.
“In terms of going forward, even though we have had all these events in 2017, our view is that on a global level the turn is likely to be somewhat muted,” Parameswaran said. “In Australia, which is a little bit more immune to some of these global trends, we think the turn in commercial markets will be sharper than the trends in the global industry.”
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