General Insurance Industry Review 2016

General Insurance Industry Review 2016

The insurance industry’s profits rose 18 percent in 2016, recovering from a low point in 2015. A lower frequency of natural catastrophes, combined with continued focus on cost savings, resulted in overall profits rising to $4,058 million, compared with the previous 12 month’s drastic fall to $3,452 million.

Partner and ASPAC Head of Insurance Accounting

KPMG Australia

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In the report we focus on the key drivers, events, trends and factors that influenced the performance of the General Insurance sector throughout 2016. We also highlight the top 10 emerging trends impacting the sector and offer pragmatic advice on how best to deal with these current and emerging themes.

Key findings

  • Insurers have continued their ability to maintain cost discipline. The industry expense ratio decreased marginally in 2016 to 25.7 percent.
  • As a result of lower claims for catastrophes in 2015/16 as well as ongoing prior period releases for CTP, the industry loss ratio has improved to 66 percent from 68.5 percent in 2014/15.
  • The industry’s capital ratio is at 1.73 times the prescribed capital amount compared to 1.75 as at 30 June 2015.
  • Competitive market conditions are expected to continue to put pressure on premiums, with forecast GWP expected to continue to be flat in the near term.
  • Whilst the challenger brands continue to provide significant competition within the personal lines market, their rate of growth slowed this year.

Top 10 emerging trends impacting the sector

  • InsurTech – Insurers are looking for new technologies to improve their customer experiences, deliver innovative products and services and transform their business models. This poses a great opportunity for tech startups and insurers to collaborate.
  • New Payments Platform – With the first market release of the New Payments Platform (NPP) project in late 2017, Australia is about to see a significant change to the payments landscape through the introduction of a ubiquitous real time payments capability. It will provide Insurers with the ability to transact real time 24/7/365.
  • Blockchain – Blockchain will enable new business models and potential improvements in core business processes within industry and regulatory regimes despite significant challenges (privacy laws, regulatory approval/requirements, etc.) that need to be overcome before blockchain technologies can be widely used in the insurance sector.
  • Driverless cars – All major automakers have driverless car development programs, and many automakers already have cars on the road with advanced driver assist technology. The challenge now will be shifting liability from human to manufacturer. 
  • Telematics – Telematics can instantaneously tell an insurer where and how a policyholder drives. Telematics will eventually become the norm for the Australian motor vehicle insurance industry, and the benefits – especially price – will be too hard to ignore.
  • Cyber insurance – A more sophisticated approach is needed. Policy wordings are complex, contain various exclusions, and at present large scale risk transfer to insurers is not happening.
  • Big data – Few Insurers are capitalising on the potential beneifts data analytics can provide. Leveraging data will assist insurers in understanding the customer and their risks better. 
  • Sustainability – Unprecedented collective action to ‘create the world we want’ should see insurers step up. The role of the insurance industry is prominently and explicitly articulated in the Sendai Framework for Disaster Risk Reduction (2015-2030), the Paris Agreement on Climate Change, establishment of the Global Insurance Development Forum and re-invigoration of the United Nations Principles of Sustainable Insurance.
  • Conduct and culture – Customers continue to feel a sense of mistrust with the general insurers and examples of customer detriment continue to emerge. With increasing focus from ASIC, the media and consumers, it is clear that doing nothing is not an option.
  • New Accounting Standard IFRS 4 – We are getting close. If the IASB (International Accounting Standards Board) has their way, they will release IFRS 4 as an Accounting Standard this Christmas.

General Insurance Industry Snapshot 2016

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General Insurance Industry Review

KPMG's annual General Insurance Industry Review series includes financial results of general insurers in the Australian market.

 
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