Australian businesses are underinsured compared with their US and UK counterparts, a new report from Swiss Re says.

Last year $US12.1 billion ($15.99 billion) of commercial insurance premium was written in Australia, making it the ninth-largest commercial insurance market in the world.

However, penetration was only 0.97% of GDP, compared with 2.4% in the UK and 1.6% in the US, the Australian Commercial Insurance Market Report says.

By line of business, liability accounted for 33.6% of commercial premium in Australia last year, followed by property (24.6%) and motor (12.9%).

Property risk remains underinsured in Australia, with an estimated total annual uninsured loss of $US3.4 billion ($4.49 billion).

Underinsurance is widespread among SMEs, the report says.

In June last year there were 2.1 million SMEs in the country, accounting for about 57% of Australia’s GDP.

According to a survey by the Insurance Council of Australia, the non-insurance rate of SMEs dropped to 12.8% last year from 25.6% in 2007.

However, many of those that are insured still lack sufficient coverage.

“In most cases SMEs have cover for their property assets, but not necessarily for business interruption risk,” Swiss Re says.

Ongoing pressure on rates has constrained commercial premium growth, reflecting “ample market capacity” and sluggish demand.

“Demand for commercial insurance is sensitive to economic cycles, and the Australian economy has slowed of late due to weakness in the resources sector and falling commodities prices.

“There have been double-digit declines in commercial property and casualty premium rates in the past two years.”

However, the outlook for premium growth is improving, given a strengthening economic performance.

“Latest indicators suggest the Australian economy is rebalancing away from mining, and the economy is forecast to grow moderately by 2.6% [this year].

“Price pressures remain low and inflation should remain well within the Reserve Bank of Australia’s target of 2% to 3% in 2016 and 2017.”

Commercial insurance premium growth is forecast at 1.1% next year, “underpinned by hardening rates in some professional indemnity liability lines and more stable rates in commercial property”.

Click here to download the full report.