Higher rates drove general insurance profit to $4.95 billion last year – the industry’s best result since 2018 – and premiums are set to go up by at least 10% from now until December as insurers seek to ease the impact of inflation and rising reinsurance costs, KPMG says in an annual state-of-the-market report.

Expectation of increasing frequency and severity of natural hazards, along with ongoing supply chain issues and labour shortages, will also add to the pressure on pricing.

“We anticipate that on average, premiums will rise by at least 10% throughout 2023,” KPMG Insurance Partner Scott Guse said.

KPMG does not expect the industry to ease prices soon as the cost of catastrophes from last year, notably the NSW/Queensland floods in February/March – now the costliest insured disaster in Australia – has nearly tripled.

Last year’s floods and other catastrophes have led to reinsurance costs rising much faster and higher than gross written premium (GWP) has over the same period.

“As a result, direct insurers are feeling the cost of this impact on profitability,” the KPMG report says.

“Insurers have and will continue to pass these increased reinsurance costs on to customers which will contribute to the anticipated 10% increase in average premiums that we expect for 2023.”

KPMG says the $4.95 billion in insurance profit achieved by direct insurers represented a 42% rise from $3.48 billion in 2021. Importantly for the industry, underwriting profit rose 72% to $6.1 billion last year.

The release of covid-related business interruption provisions also supported headline profit figures, reducing the impact on net claims costs.

The improved profit was largely driven by a 10% increase in GWP to $59.36 billion, lifted by hardening rates. KPMG says GWP growth was evident across all classes of business with the exception of mortgage.

“Increased claims costs were largely mitigated by these higher, average written premium prices, with insurers continuing to price products to reflect claims inflation, natural hazards expectations and higher reinsurance costs,” the report says.

Homeowners/householders, commercial motor vehicle and employer’s liability in particular recorded “profound” increase in pricing and the number of risks underwritten.