The insurance industry's profits fell by 12 percent to $4.4bn in 2019, reversing the trend of the last two years, KPMG Australia’s annual General Insurance Industry Review, released today, shows. Higher claims due to natural hazards, including East Coast weather events in summer 2018/19, were partly to blame.
Gross written premiums rose by 5 percent to $44.8bn in the 12 months to 30 June 2019. This growth was largely rate-driven, as the industry continues to combat the rising cost of claims, and would have been even higher but for the impact of reforms to the Compulsory Third Party (CTP) schemes in NSW and QLD. Net earned premiums rose by 4.5 percent to $32.3bn.
David Kells, KPMG Head of Insurance, said: “This year has illustrated the cyclical nature of insurance. 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. For the last five years, gross written premiums have risen and the market continues to harden, so we expect further price increases in the year ahead in both personal and commercial fields. But with record amounts being paid out in claims, the importance and value of insurance to Australian consumers and businesses should be acknowledged.”
KPMG’s report notes that, in a challenging year for the industry, there were significant operational improvements by some of the leading players, which has helped to reduce costs.
Scott Guse, KPMG Insurance Partner, said: “Insurers are expected to finalise their optimisation programs with further incremental improvements from optimisation initiatives expected in FY20 to realise their targets. But costs of claims continues to rise – in areas like motor insurance, the higher sophistication of vehicles, with computerised systems, means repair costs are much higher than years ago.”
“The drop in the insurance margin in 2019 was a concern, so the dual focus on reducing costs while upgrading digital capabilities – to automate businesses and improve product offerings and enhance the customer experience - will have to be redoubled. Customers now expect an immediate personalised service at the click of a button from buying a policy to making a claim. But the industry is stepping up to the challenge and recent KPMG global research showed several insurers in the top ten ratings for excellent customer experience in Australia.”
Climate change is another topical issue, with 2018 following 2017 as extremely high years for global climate-related insurance losses.
Scott Guse said: “The insurance industry was one of the first to start adapting meaningfully to climate change, by including climate science in their risk models, and considering climate risk in their investment portfolios. Climate change is the new normal for insurers.”
The KPMG report also includes findings from Google, which show that the trend among consumers to research insurance products via multiple devices, often on the move, continues. Searches for ‘best car insurance’ or ‘best house insurance’ have steadily increased from 2016-19. Online video via Youtube is increasing in popularity in the research of insurance and other financial services products.
©2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.
Liability limited by a scheme approved under Professional Standards Legislation.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.