Australia’s slowing economy could hurt insurers, actuary Finity has warned, after the industry posted a strong performance for the second straight year.

The economy grew 1.5% in 2023-24, its weakest year – excluding the covid pandemic – since 1991-92 when the nation was recovering from the 1991 recession.

Finity’s annual Optima report says current economic conditions and affordability challenges will reduce demand and limit premium growth, with greater levels of under- and non-insurance likely.

“The precarious economic environment is a danger for the general insurance industry,” co-author Pravesh Ponna told insuranceNEWS.com.au. “The top line could be impacted with affordability issues on personal lines classes and lower economic growth for commercial classes, along with deteriorating economic conditions impacting loss ratios for classes such as liability, financial lines and workers’ compensation.

“And of course, while claims inflation appears to be moderating, global instability impacting our supply chains could present a re-emergence of claims inflationary pressures for home and motor.”

Premium affordability has been a constant theme in the past few years after insurers raised rates to address claims inflation and other cost pressures.

Finity says the weak economy has led to reduced sums insured in personal and commercial lines.

“Although insurance is relatively ‘non-discretionary’, these ongoing affordability pressures will inevitably place upward pressure on under- and non-insurance levels,” the Optima report says.

The report says claims costs have eased, particularly in relation to materials in the property classes. However, inflationary pressures around skilled labour are rising and stricter immigration rules will further exacerbate supply pressures in key professions needed for reconstruction after loss events.

Click here to request the report.