The insurance industry's profits rose by 25 percent to $4.8bn in 2017, and now seems set for a sustained upswing, KPMG's General Insurance Industry Review shows.
Premiums were 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.
Scott Guse, KPMG Partner and ASPAC Head of IFRS Insurance, said: “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.
“Gross written premiums (GWP) increased by 5 percent to $43bn. The growth in premiums was largely rate-driven – a clear sign that the market is starting to harden.
“In recent years, the competitive environment has put pressure on premiums with only marginal increases experienced. This however is the first year in quite some time that we have seen this sort of growth.”
Scott Guse added: “The average GWP quarterly growth rate for 2016/17 was 1.2 percent – this reflects the highest percentage growth we have seen in recent years and as this growth is largely rate-driven it demonstrates that the market has started to harden.
“In our view this hardening is well overdue and has certainly been a key driver in delivering the positive industry results. That being said, whilst the results for the year are positive the underlying insurance margin (overall insurance profitability) of 16 percent is still below the results achieved by the industry in 2012, 2013 and 2014, so there is still a way to go.
KPMG believes it essential that insurers maintain their pricing discipline and do not risk eroding their growth by aiming for short-term market share expansion. Automation has a crucial role to play.
David Kells, KPMG Insurance sector leader, said: “Maintaining cost disciplines will likely see some insurers focus on greater automation onshore with Advanced Intelligence (AI) and robotics whilst others continue with ongoing offshoring and outsourcing efforts. We have seen expense ratios continuing to decline in recent years, but with the investment in new product offerings, technology and a focus on client experience, further cost reductions will be harder to secure in the short term.
An example of where AI has started to make a difference is evident from the work Google has done globally with AXA. Using AI through machine learning and data analysis (referred to as the TensorFlow machine learning framework), AXA has been able to predict with 78 percent accuracy, those motor vehicle policy holders that will be involved in a claim exceeding $10,000. This sort of technology will further enhance an insurers’ ability to appropriately price a specific insurance policy.”
KPMG believes the progressive move away from a call centre/branch distribution network for general insurance retail products (i.e. car, home and travel products) to a distribution platform that is mobile, digital or online based is a significant contributor to the 1.4 percent reduction in expense ratio.
David Kells added: “Google has reported a significant increase in ‘queries’ through mobile devices over the past 12 months. Customers are becoming more comfortable researching and then purchasing their general insurance products on their mobile phones, while on the train or bus going to work or even while they are waiting for their daily coffee. Whilst this trend is producing more cost effective distribution platforms for insurers, it does however highlight the need for insurers to make sure their mobile websites are easy to use and tailored for a mobile device.”
In the report, KPMG identified 10 emerging trends for insurance companies:
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