Property premiums in Australia have held up mainly as a result of natural catastrophe risks, according to Swiss Re Chief Economist Kurt Karl.

He says bushfires and floods have prevented premiums falling as dramatically as they have in other parts of the world.

Speaking to insuranceNEWS.com.au during a brief visit to Australia last week, Dr Karl said Australia remains “a good country for business on the property and casualty side”. 

He says Australia’s natural catastrophe risks have prevented premiums falling as they have in countries “where it’s been more benign”.

He says the strong availability of capital pouring into the industry will continue to dampen rate rises, and says competition also keeps premiums lower.

A case in point is the 2010/11 Christchurch earthquakes, which saw property premiums rise steeply before falling back, despite the high ongoing costs being borne by reinsurers.

“You have the catastrophe and prices go up, but then of course you get some alternative capital coming in, and then you also get some new players and more capital from the existing players. So the prices go down,” Dr Karl said.

“That will continue for a while, and then you may or may not have another catastrophe. But many countries in the world haven’t had that other catastrophe, so the prices are still declining or stable.”

He says this trend will continue until reinsurers decide they are under-priced because they have calculated their rates around the cost of the previous 10 years of catastrophes.

“Things get to stabilise at some point.”

Dr Karl says global warming is causing more volatility in weather around the world, but there have been few large-scale catastrophes in recent years.

“Instead, we are seeing volatility on a local basis, where heavy rain becomes a flood, or drought leads to fires.

“Things seem to be going up in frequency, but we haven’t seen anything that’s huge and dramatic like Hurricane Katrina in 2005.

“What we’ve been getting is things like the quite substantial wildfires in Canada, which is caused by the dryness of the timber in the region.

“These things are happening more and more frequently, but we haven’t had the gigantic event that gets you involved more on a personal or populous level where you are prompted to get engaged in the global warming thing.”

Dr Karl says the global insurance industry must keep track on the impact of global warming, “as well as continuing to get the word out that we’re going to have a long-term serious problem if we don’t work on it”.