2017 has been a very positive year for the general insurers, with profits up by 25 percent. Our report reveals the key drivers of the strong results and delves into the top 10 emerging trends impacting the industry.
The industry’s profits rose by 25 percent to $4,849million in 2017, and now seems set for a sustained upswing. Premiums were also up, while claim costs and operating expenses were down from 2016. The only cloud in an otherwise sunny outlook was a fall in investment income. Overall this has been a very positive year for the general insurers, and we believe it signifies the start of a long awaited upswing in the insurance cycle.
In our annual General Insurance Industry Review report we focus on the key drivers, events, trends and factors that influenced the performance of the general insurance industry throughout 2017. This year we have worked with Google Australia to incorporate strategic insights and analysis obtained from the searches insurance customers perform through the google search engine as they research and make their insurance purchases. We also highlight the top 10 emerging trends impacting the industry and offer pragmatic advice on how best to deal with these current and emerging themes.
Alongside the report we have published the KPMG General Insurance Insights Dashboard. The dashboard contains interactive charts and graphs which can be filtered to view industry metrics for a particular year or insurer. It also enables comparison of metrics for an individual insurer to others in the market.
Explore the interactive dashboard.
In the report, we discuss 10 emerging trends that will impact the industry in both the short and long term. We reflect on the implications of these trends, which may require Australia’s general insurers to significantly adapt the way they do business.
1. Insurtech. Over the next 2 years, the standout market force influencing the transformation of Australia’s insurance industry is disruptive innovation. Some insurtech companies will look to compete with traditional insurers, others will look to collaborate.
2. Digital. Technology has the potential to fundamentally change not only the way that consumers perceive and interact with their insurers, but also the role of insurance in everyday life.
3. Blockchain. Distributed ledgers are emerging capabilities that hold significant potential, and the key to successful application of this technology will be the ability of industry participants to foster buy-in and trust from stakeholders.
4. Artificial intelligence. In a recent survey of more than 100 insurance CEOs by KPMG International, more than a quarter saw automation – a key step towards robotics – as the answer to managing their current skills gaps and adding significant value. 15 percent said they planned to put 'significant' investment towards cognitive computing, machine learning and AI over the next 3 years.
5. Cyber. The total cyber-insurance business currently amounts to US$2 billion, whereas the total cost of security breaches to the global economy amounts to a whopping US$445 billion. This will lead insurers to continually grow their cyber insurance offerings.
6. Data analytics. Insurers have unrivalled access to a great deal of information about their customers Harnessing this data is key to competing in the market and exploiting the opportunities new technology brings. On-demand insurance might be convenient and appealing at the point of use, but premium rates will need to be higher.
7. Customer focus. Insurers are continuing to focus on becoming more customer-centric as a way to drive growth and increase value. In Australia, we have seen an increased focus on this recently – in August 2017, Allianz announced the appointment of a Chief Market Manager in order to make customer experience the top priority for all their actions. In July 2017, QBE appointed a Chief Customer Officer in an effort to make the company more customer-focused. Suncorp and IAG did this in 2015/16.
8. Risk mitigation. Catastrophic weather events have cost the Australian insurance industry tens of billions of dollars in recent years. In In response to this need, some insurers have also started to invest in developing programs to support initiatives to make insurance more affordable.
9. IFRS 17. May 2017 saw the most significant accounting change since Margin on Services was introduced in 1995 for life insurance. The standard brings in different ways of valuing insurance contracts and assets. The amount of time and capital insurers will need to invest in their systems, processes and controls in order to prepare and implement the new standard will reflect this.
10. Conduct and mis-selling. Australian insurers have seen themselves making front page news through issues of claims handling, mis-selling and providing products to customers that provide little or no benefits. Yet conduct risk is seldom the sole cause of problems. Poor culture within an organisation and a strategic failure to put the customer at the heart of the business have a comparable capacity to undermine. Strategies for the 3C’s – conduct, culture and customer must be addressed in parallel.
In our report, we explore each of these trends in detail and offer pragmatic advice on how best to deal with these current and emerging themes.