Australia’s general insurance market is projected to be worth at least €49.1 billion ($74 billion) by 2032, representing growth of about 3.9% on a compound annual basis over the next 10 years, according to a new report from Allianz.

The insurer’s latest Global Insurance Report says Australian property and casualty (P&C) premiums surged 11.2% to €32.1 billion ($48.3 billion) last year from 2020.

A spokesperson for Allianz says the 11.2% expansion marks “the fastest increase this century” and expects growth this year will “normalise” to about 5.1% and an average of 3.9% per year over the next decade.

The spokesperson tells insuranceNEWS.com.au for property risks, the frequency and intensity of natural catastrophe events over recent years such as floods and bushfires is "putting upward pressure on reinsurance and insurance premiums”.

“This is exacerbated by claims cost inflation from supply chain constraints, leading to increases in the cost of building materials, as well as shortages in building trades arising, for example, from increased building activity encouraged by government support for new home building in response to the earlier covid-induced economic slowdown,” the spokesperson said.

“Supply chain constraints are also putting upward pressure on motor premiums arising from delays in the delivery of new vehicles, and the flow on to higher used car prices, key components such as computer chips, and increases in the price of vehicle parts.”

Allianz says last year the P&C market globally expanded 6.3% to €1.7 trillion ($2.6 trillion), powered by the US and Europe.

For this year P&C premium is forecast to grow 4.6% globally and also by a similar margin each year over the next ten years, the Allianz report says.

The report says had it not been for the Russian-Ukraine war, this year would have been “another bumper” one for the insurance industry.

“The invasion of Ukraine has dashed those hopes,” the report said.

Looking beyond the war, the report says the next decade will be a “decisive” one for the industry, following covid and long-running challenges such as economic pressures from rising interest rates, climate change, cyber threats, extreme weather events and protection gaps.

“Despite the great uncertainties today – from the impact of the Ukraine war to the consequences of the interest rate turnaround and the continuing threat from Covid-19 – we are not too pessimistic about the more distant future,” the report says.

“After all, these uncertainties are precisely the breeding ground for demand for rising risk awareness; they reinforce the impact of the two megatrends of climate and demographic change, which will continue to be the main drivers of demand for risk protection.”

The report says for P&C insurers, climate change is the main topic in two respects. First, extreme weather events will increase in the coming years, and with them natural catastrophe claims from floods, droughts, forest fires and storms.

“This development will inevitably lead to higher premiums as well,” the report said.

However climate-mitigation efforts will intensify, first and foremost the decarbonisation of energy supply, which has become even more important against the backdrop of the Ukraine war and the resulting quest for energy independence.

“This requires major investments from both the private and public sectors and creates a high need for risk protection as new risks emerge with this radical transformation of our economy,” the report said.

The report says there will hardly be a lack of demand for risk protection and prevention solutions and urges insurers to rise to the challenge.

“Without question, the upcoming upheavals will give birth to new risks, for instance risks related to data protection, new green technologies or AI and climate liability,” the report said.

“So does this mean that the insurance industry can look forward to good prospects? Yes, but with one important caveat: if it succeeds in maintaining its economic and social relevance.”

Click here to access the report.