KPMG’s 2013 General Insurance Survey reports that surveyed insurers posted total insurance profits of $4,394 million (2012: $2,732 million) an increase of 61 percent, with gross written premiums increasing by 9.2 percent to $31,793 million for the year ending 30 June 2013.
The significant improvement on last year’s result was driven primarily by earnings from premium rate increases and a relatively benign catastrophic claims environment. The increase in gross written premiums are primarily attributed to increases in rates for short tail classes (including property and motor) as insurers continue to recover higher reinsurance costs, and in long tail classes in order to reflect the reduced investment yields.
Despite the positive result, KPMG Insurance partner, Scott Guse said the insurance industry is facing its toughest ever environment. "Whilst the reduction in catastrophic claims together with the benefit of premium increases has combined to produce positive results for the industry as a whole, insurers are walking a tightrope with historically low investment market returns, increasing competition from new non-traditional market entrants and additional pressure on premium pricing as a consequence of concerns by consumers about affordability," he said.
"And to top it off, new regulatory and capital requirements for insurers are adding an additional layer of complexity to the market," he said.
Many insurers are working to address the issue of ‘insurance affordability’, providing the option of cheaper rates through flexible policy excess options. At the same time, newer entrants are actively marketing their brands and promoting their product offerings. This competition is leading to a wider range of options available for the policyholder. Customers may now be questioning whether their loyalty lies with their traditional insurer or with an alternative non traditional insurance provider. The answer is likely to rest with the provider of the better insurance customer experience.
"Lean, efficient, innovative, agile and a specific focus on customer needs are likely to be the core attributes of successful insurers into FY14. Competitive pressures will see insurers that do not exhibit these traits falling behind the pack," said Mr Guse.
The industry continues to be well capitalised having sufficiently prepared for the requirements of the new LAGIC (Life and General Insurance Capital) framework from 1 January 2013. The industry’s capital coverage at 30 June 2013 was 1.82 times the Australian Prudential Regulation Authority (APRA) prescribed capital amount calculated under the new APRA LAGIC regime. This compares to 1.79 times the minimal capital requirement at 30 June 2012 (calculated under the previous framework).