Choice, the consumer group is advising consumers who live in places that are prone to flooding from taking out insurance in an irresponsible manner, whilst at the same time heavily criticizing the industry according to the insurance council.
Recently the advisory group held its annual Shonky Awards, where the group awarded lemon trophies for dubious dodgy and deceitful goods and services.
Choice singled out the insurance industry, following this summer’s flooding in Victoria, Queensland and New South Wales.
Shares of Australian insurers that have exposure to Japan are vulnerable to sell offs amid investor fears that reinsurance costs will soar.
Australia’s largest insurer QBE Insurance Group also has the biggest exposure to Japan warned on Monday that it expects net claims of US$125 million. Its shares fell by 1 per cent on Monday, whilst rival Insurance Australia Group saw its share price decline by 2.6 per cent, with Suncorp falling 1.3 per cent. Neither IAG nor Suncorp have any exposure to Japan, but their shares still sold off as investors expressed concern that the two companies would be negatively impacted by rising reinsurance costs.
Australian insurance major IAG reaffirming recent guidance given to investors posted a 51 per cent decline in first have net profit.
IAG’s first half profit for the six months ending December 31 fell 51 per cent to $161 million from $329 million during the same time period in the previous year.
Australian banc assurer Suncorp reported a 39 per cent decline in first half profits, coming in better than expected, with the company saying that despite goodwill write-downs and natural disasters occurring over the period, its underlying business was performing well.
Suncorp which is based in Queensland and had heavy exposure to the flooding in the state also announced that its current chairman John Story who is set to step down, would be replaced by former Telstra chief executive Dr Ziggy Switkowski.
Australian insurance major IAG on Monday cut guidance on its margins after its UK subsidiary incurred a loss and following the aftermath of floods and storms in Australia.
Australia’s largest home and car insurer issued insurance margin guidance of between 9 to 11 per cent for the year ending June 30th 2011. The company had previously expected to deliver margins of between 10.5 to 12.5 per cent.
Australians are likely to have to pay higher home insurance premiums as insurers seek to recoup some of the $1.6 billion in claims they will have to pay out as a result of the flooding in Queensland and cyclone Yasi warns QBE Insurance chief executive Frank O’Halloran.
Australian insurers face further pricing pressure as global re-insurers demand higher premiums for substantially increasing their exposure to the risk of Australian natural disasters.
Fitch, the credit ratings agency says it believes major Australian general insurers have more than enough reinsurance to cover the claims that are expected from the flooding in Queensland which is estimated to cost Suncorp as much as $150 million.
According to the ratings agency, whilst the insured losses have the potential to escalate substantially as flooding begins to engulf urban areas such as Brisbane, the major insurers have sufficient reinsurance protection.
Analysts have already begun circling Australian insurers with Goldman Sachs downgrading Suncorp Group’s full year earnings estimates as a result of the impact of claims stemming from the flooding in Queensland.
Despite downgrading Queensland based Suncorp, Goldman’s did quite the opposite with rival Insurance Australia Group (IAG), upgrading the insurer’s full year earnings.
According to the investment bank, the impact of flood related claims on Suncorp will result in an 11.3 per cent decline in full year earnings per share compared to its estimate prior to the flooding.
Australia’s three largest insurers saw their market capitalisation wiped by over $830 million, as investors fearing the impact on earnings as a result of the Queensland flooding intensified.
Suncorp, QBE and IAG all saw their share price decline on Tuesday, after JP Morgan analysts began suggesting preliminary damage estimates could be as high as $1 billion, with Suncorp’s exposure as high as $200 million.
Queensland based bancassurance firm Suncorp issued a statement to the Australian stock exchange re-assuring investors that is has sufficient reinsurance to cover claims related to flooding in the state.
The flood crisis has affected more than 20 cities and towns and is expected to cost more than $1 billion described as the worst in 50 years. Suncorp says it has received over 1,800 claims since Christmas Eve.