Devastating storms and bushfires have torched a $26 million hole in Suncorp’s profits, prompting analysts to question the industry’s long-term viability.
As bushfires raged across more than 10 million hectares of land, Suncorp’s profits plunged 6.2 per cent over the six months to December 31, 2019.
Destructive storms and “challenging economic conditions” only added to the pain.
While the sale of two subsidiaries, Capital SMART and ACM Parts, boosted the group’s net profit after tax by 156.8 per cent, to a total of $642 million, bushfires and storms dealt a major blow to ongoing profits.
Profit after tax from ongoing functions fell from $422 million to $396 million, according to the insurance giant’s latest earnings report.
Suncorp Group CEO Steve Johnston said in a statement he remained “confident in the resilience of the group” and will continue to protect earnings through “appropriate risk selection and significantly strengthened reinsurance arrangements”.
He used a results presentation on Tuesday morning to call for more government action on climate change.
“Against a scorecard of lives lost, properties destroyed and saved, and communities torn apart, it continues to be abundantly clear that more needs to be done,” Mr Johnston said.
“For some time, our company has been arguing for a national response to improve the robustness of our private infrastructure and incentives to make our communities more resilient in the face of a changing climate.”
Asked whether Suncorp would have to increase premiums to cover the loss in revenue, a company spokesperson told The New Daily they did not expect “recent events in isolation to materially impact premiums in the short term”.
“At the end of last year we increased our natural hazard allowance and bought additional reinsurance cover because we expected natural hazard claims to be higher,” the spokesperson said, adding that more must be done to make Australian homes more resilient to climate change.
“For example, home owners are incentivised to install solar panels on their roofs but they get no support for strengthening the roof to withstand severe weather,” they said.
“By lowering the risk, premiums would ultimately be lower for customers.”
The fall in profits comes at a difficult time for Australia’s insurance industry.
The second half of 2019 saw no less than seven natural disasters – meaning payouts skyrocketed.
Suncorp, for example, received more than 42,000 claims in Australia over the six months to December 31, 2019.
Climate risk analyst Dr Karl Mallon told The New Daily our climate was changing so rapidly that some homes would soon become “uninsurable”.
This is because climate risks in some areas were so severe that insurers had no choice but to hike premiums to unaffordable levels, forcing less wealthy consumers to take on the risk.
This is already happening to some extent.
Comparison site Canstar found that average premiums in cyclone-prone North Queensland are now 2.7 times higher than the rest of the state.
And ABS figures reveal that 1.8 million households have no home insurance whatsoever.
“The more important issue [with regard to Suncorp’s fall in profits] is: To what extent does this send some worrying signals about the viability of the industry as a whole going forward?” Dr Mallon said.
“Because if climate change is coming on harder and faster than expected … then in order to stay profitable, they are going to either have to increase premiums or avoid writing policies to high-risk locations.”
Dr Mallon said the latter was more likely as insurers would lose customers to competitors if they tried to cross-subsidise the risk by increasing premiums across the board.
He noted that 5 per cent of the property market faced acute climate risks and insurance problems, with many homes built today ill-prepared to deal with our changing climate.