A campaign from the Reserve Bank will cause companies in Australia to pay more for coverage.
One of Australia’s leading business insurance companies has revealed that it will be required to increase the premiums it charges in order to compensate for the aggressive cut in rates by the Reserve Bank, which are eating into the insurer’s investment earnings.
This latest news was announced ahead of the monthly meeting of the country’s central bank.
The commercial arm of the business Insurance Australia Group has stated that it doesn’t see any other choice but to increase the premiums that it must charge for its products in this sector. That said, Peter Harmer, the CGU chief, would not reveal the amount by which the premiums would be increasing.
Harmer did indicate that there may be the requirement for a liability business insurance increase of 8 percent.
He explained that this could be needed in order to balance the drop in investment yields that would be seen by the business insurance company as a result of the massive rate cutting campaign by the bank. The Reserve Bank of Australia had already slashed 1.5 percent from the country’s official interest rate since this time in 2011. It is now greatly expected that an additional 0.25 percent will be shaved away, bringing the cash rate to 3 percent.
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The result of this move will be the lowest rate level that the country has seen since it reached the low point in the economic crisis, and it would match the lowest point that has been seen since the central bank began the monthly renewals of its interest rates over twenty years ago.
The CGU has cautioned business insurance lines for directors and officers liability, professional indemnity, and underwritten workers’ compensation will be among those that will face the largest premiums hikes due to the weakening of the performance of the investment portfolio.
This announcement was made as business insurance companies widen their efforts to increase their profitability after the massive payouts they were required to make following the series of natural disasters in 2011. Harmer explained that these coverage products were seeing considerable shrinking in their margins due to the aggressive interest rate cuts.