MENU

QBE walks away from South Australia

Insurance giant QBE Insurance (ASX: QBE) will cease offering builder’s warranty insurance in South Australia from July 1, driven by a rising number of insolvencies.

In what is a positive sign for investors in insurance companies, (but not builders), when insurers face losses from a particular type of insurance, they can simply stop offering it. For those shareholders in QBE, Insurance Australia Group (ASX: IAG), AMP Limited (ASX: AMP) or Suncorp (ASX: SUN), worried about global warming and a perceived or real increase in extreme weather events, insurers will either raise premiums or cease offering certain types of insurance.

That’s what we have seen with QBE’s decision to walk away from covering builders in South Australia. Luckily for the building industry, the South Australian government has struck a deal with QBE, where the insurer will act as an agent to deliver an insurance product for the next 12 months.

According to ABC News, Australia’s eastern states have acted already to cover the gap left by insurers, but Western Australia has yet to decide what it will do about building insurance.

South Australia’s finance minister, Michael O’Brien said that it wasn’t a profitable product for QBE, hence their decision to walk away from the market. He also said that from next week, premiums will rise by 50% to cover costs, but will still be cheaper than cover offered in other states.

David Callan from the Master Builders Association said the building industry couldn’t function without insurance. Under current legislation in South Australia, building indemnity insurance is compulsory.

Foolish takeaway

We’ve seen several extreme weather conditions recently including floods and storms in Queensland, and northern NSW and fires and unseasonably hot weather in the southern states. Consumers can expect insurance premiums to rise in many of those states.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in QBE.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.