Insurance premiums will continue to rise on the back of low interest rates, according to the 2012 JP Morgan Taylor Fry General Insurance Barometer.
The report said low interest rates were likely to impact the investment returns used to support claims, leading to an increase in domestic insurance premiums during the year.
"Certainly, one of the big factors that's concerning insurance companies at the moment is that investment yields are declining and given that [insurance companies] have such big investment portfolios they're earning a lot less, going forward, on their investment portfolios," JP Morgan senior insurance analyst Siddharth Parameswaran said.
"Insurance companies receive money that they hold for a while to pay claims... It is actually that profitability that is under some pressure from falling interest rates."
The report said the insurance industry showed strong rate increases in domestic insurance last year of more than 9 per cent, driven predominately by home insurance which saw a rise of 15 per cent.
Commercial insurance increased at a slightly lower rate than domestic insurance last year, reaching 5 per cent.
"For 2013, the industry is forecasting similar increases in domestic insurance classes, driven by home insurance once again," Mr Parameswaran said.
"The biggest concern is commercial insurance centres around the longer tail products, where claims generally take longer to settle and rates have not been rising any significant way for some time, but where investment yield reductions are posing a threat to profitability," Taylor Fry actuary Evelyn Chow said.
Despite the increases in premiums, however, the report found that the Australian insurance industry had identified improved operational results last year due to lower levels of catastrophe activity in comparison with 2011.
Mr Parameswara said catastrophe claims in property and short tail products, which are often incident-related, improved in 2012 but that it is likely the trend will reverse this year.
