The insurance sector’s profits were slashed by almost 50 percent to $2.3bn in the 12 months to 30 June 2020, KPMG Australia’s annual General Insurance Industry Review, released today, shows.
Major factors behind the slump included severe natural hazards events, such as the catastrophic bushfires in Queensland, NSW and Victoria and severe storm activity (hail, rain and flooding) across the Eastern states between November and February.
The decimation of Investment income – down 91 percent on the previous year to just $268m – was another significant problem, with investment markets volatile due to the COVID-19 pandemic and a continued reduction in interest and yield curves.
One bright spot was the increase in gross written premiums by 4.76 percent to $47bn, the growth in GWP being driven by positive volumes and rate increases mainly in the classes of motor and home. But the insurance margin – the industry’s key metric – fell to its lowest level in seven years.
David Kells, KPMG Insurance Lead Partner, said: “This has been a very difficult year for the industry, with natural catastrophes, significantly unfavourable investment results due to volatile markets, and a spike in reinsurance costs. And the situation has become more challenging with the recent court ruling on business interruption losses due to COVID-19 not being excluded under the Quarantine Act. If the judgement survives the proposed court appeal, this will have significant implications for many insurers.”
The outbreak of the COVID-19 pandemic during the year had a notable impact on insurers’ activities, the report finds. Prior to the lockdown restrictions, new business volumes and retention rates were higher than in 2019. Whilst most insurers saw a favourable impact from reduced motor and home claims due to the COVID-19 restrictions, this was offset by:
Scott Guse, KPMG Insurance Partner, said: “Insurers responded well to the drop in income for many of their customers during the pandemic. Customer initiatives offered included premium waivers or discounts; deferral of premium payments for small businesses experiencing financial hardship; maintenance of full cover on small business premises who were required to close for no additional premium; reduced payment days to suppliers; and waiving administration or cancellation fees for people experiencing financial hardship.”
David Kells concluded: “Looking ahead, in addition to the outcome in respect of business interruption, the current environment remains uncertain for insurers as a result of the COVID-19 pandemic and the further impacts that could arise. Insurers are forecasting continued growth in natural hazard events, while higher regulatory and compliance costs are expected to continue as insurers implement operational changes in response to the Royal Commission’s recommendations. They should also be preparing for the implementation of the global accounting standard, IFRS 17 Insurance Contracts, which will have a significant impact on their balance sheets and P&L accounts.”
In the report, KPMG identified ten key trends which will impact Australian insurance companies in both the short and long term, several of which are technology-related:
T: 02 9335 7765 / 0400 818 891
©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.