Australian insurers are flagging premium increases, but data from the Insurance Council of Australia (ICA) shows they were struggling to ramp up prices in the September 2011 quarter.

ICA data for September indicates premium pricing over the preceding 12 months remained competitive in motoring and contents insurance, growing by 0.9% and 3.9% respectively, but building insurance premiums rose by 14.7%.

In a note issued by Merrill Lynch, analyst Andrew Kearnan says the ICA data covers a period “in which all insurers will have been focused on pushing up prices to recover materially higher reinsurance costs and greater risk retention”.

However, that data “shows instead that there was no material change in motor risk pricing, consistent with the feedback we had received of aggressive competition for new business from major insurers and challengers alike”, Mr Kearnan says.

“Pricing statistics will be critical to monitor as IAG and Suncorp seek to recover around 30% higher reinsurance costs.”

While the building insurance segment is the only area where premiums are rising, it is also experiencing higher than average claim sizes – a 61% increase in costs over the 12-month period – which are eroding profitability, according to Merrill Lynch’s crunching of the ICA numbers.

The investment analyst estimates profit margins in the building insurance segment are running at a 58% loss on a rolling year margin, compared with profits of 13% in motor and 15% in contents.

“Looking through the volatility, motor and contents continue to be highly profitable industry-wide while the buildings segment remains in the red,” he says.