Insurance premiums seen rising 20pc in wake of US terrorist attacks
Insurance premiums are on track to increase by 20 per cent this year, partly because of the aftermath of the terrorist attacks in the United States.
The attacks cost the insurance industry US$70 billion in payouts, making it the most expensive insurance claim in history.
Insurance charges rose sharply as a result, according to Cheng Kwok-ping, the newly elected chairman of the Hong Kong Federation of Insurers.
Mr Cheng said that in the first quarter general insurance premiums of the 150 general insurance companies in Hong Kong increased 17.6 per cent compared with a year ago, to HK$6.36 billion. This followed a 10 per cent yearly growth of general insurance premiums last year.
'The strong numbers in the first three months support the view that we could have 15 to 20 per cent growth for the whole year, while life insurance would be able to see about 10 per cent growth,' he said. 'We can announce that the price war among insurers has ended.'
For example, insurance for commercial and property protection has increased 20 to 30 per cent.
Motor insurance for minibuses and taxis has almost doubled, while employee compensation premiums have increased by three to four times. In some extremes, the increase was tenfold.
The terrorist attacks cost the main reinsurance companies dearly, cutting their ability to share risk with direct insurers.
'The difficulty of securing reinsurance cover and investment loss have led most insurance companies to cut down their business scale,' Mr Cheng said.
This has brought the low prices of the 1990s to a close.
However, the higher prices have helped the insurance sector achieve an average underwriting profit of HK$78 million in the first three months, compared with a HK$191 million loss last year.
Mr Cheng said customers may no longer enjoy low prices for their insurance policies, but the higher pricing may help to avoid insurers collapsing.
HIH Group of Australia collapsed last year with liabilities of HK$1.05 billion - the largest corporate failure in the insurance sector.
The group's 27,000 Hong Kong policy-holders, including the Hospital Authority and Law Society, became creditors of the failed firm and might have to wait up to 10 years for compensation.
'After HIH, the other insurance companies learned a lesson - that we should use more reasonable pricing to do business,' Mr Cheng said.
To avoid more insurance companies running into problems, he said the Insurance Authority would be issuing a guideline this month on corporate governance.
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