Premium rates are set to continue rising as insurers also battle rising claims costs, KPMG says in its annual review of the industry.
Gross written premium (GWP) rose 5% to $44.8 billion in the past financial year, driven by rate rises and despite reduced compulsory third party contributions as part of scheme reforms in NSW and Queensland.
KPMG Insurance Partner Scott Guse says the past few years have seen steady upward price momentum, with gains of about 4% to 5% in retail products such as home and motor. Similar increases are likely in the current year.
“At the same time claims costs are rising, so it is not as if they are getting all the increases to the bottom line,” he told insuranceNEWS.com.au. “But price increases are here, I think, for the next few years.”
Among the challenges are the increasing sophistication of vehicle computerised systems, which is boosting repair expenses, while regulatory and compliance burdens have also increased since the Hayne royal commission report.
Insurers are also pursuing operational efficiency programs and are investing in technology to drive future returns.
“The majority of these programs focus on enhancing digital capabilities and automating businesses, but also to improve product offerings and enhance the customer experience,” the report says.
Insurance industry profits fell 12% to $4.4 billion in the past financial year as catastrophes such as the Sydney hailstorms and the Townsville floods increased natural hazard costs.
The combined operating ratio worsened to 92% from 88%, with the loss ratio deteriorating five percentage points to 68%. The expense ratio improved to 24% from 25%.
“The previous two years were relatively kind in terms of claims, but this year saw a less favourable claims experience for insurers, while lower than expected reserve releases added to the decline in profits,” KPMG Head of Insurance David Kells said.
Catastrophe costs were offset by higher reinsurance recoveries and reserve releases, mainly related to compulsory third party schemes.
KPMG’s report also identifies 10 emerging trends, led by digital demands and the need for companies to become connected across their front, middle and back offices.