Insurance Strong in a Healthy Australian Economy

The milestone that came and went with so little notice was the passing of 21 years without an economic recession, an anniversary that would be the envy of much of the world and that should be cause for national optimism. Instead, according to Deloitte Access Economics’ Chris Richardson, “We were too busy seeing a glass half empty.”

Looking ahead, Richardson expected strong growth to continue, although he tempered that optimism with a mention of two continuing concerns. First, conditions in China and Europe will have an effect, but the Australian economy will thrive so long as those conditions do not deteriorate beyond the level already predicted. Second, much of Australia’s growth has been the result of “a striking investment boom,” and that boom will not last forever.

“The peak of the project pipeline is already in sight, meaning the key prop to the faster part of Australia’s two speed economy is looking less certain the further out you look,” Richardson said.

Despite that, resource projects, along with strong consumer spending and a strong dollar, continue to bolster the economy.

Richardson noted that not all sectors were exhibiting the same strength, but that some were exceeding expectations.

The financial sector has been one of those outperformers, according to Richardson, and Deloitte includes general insurance among the bright spots in finance.

Rick Shaw, Deloitte Access Economics General Insurance Partner, told insuranceNEWS.com.au that, while issues of affordability remain troubling, growth in general insurance has continued. Looking ahead, the industry should remain aware of several potential obstacles to continued growth.

Among those obstacles are the risk of an economic slowdown and the impact of new regulations, especially those that impose new capital requirements on insurers. According to Shaw, increased capital requirements, especially the horizontal insurance obligation expected in 2014, may cut into insurer profits.

On the topic of affordability, Shaw noted that insurance became unaffordable for some when insurers improved their rating systems following recent natural disasters, an improvement that led to premium increases.

More generally, financial considerations have created affordability problems for many people. “The two-speed economy effect is being seen as rates of underinsurance and non-insurance increase at lower socio-economic levels,” Shaw said.