The Australian general insurance industry had a fruitful year in 2021, with its profits up by 281%, thanks to increased gross written premiums (GWP) without a similar corresponding increase in claims costs. However, KPMG warns of a looming threat.
Delving into the performance of the general insurance industry's segments in 2021, KPMG's latest report found that:
- Personal accident and health (PA&H) insurance surpassed motor insurance as the largest segment in the market, accounting for 36.7% of direct written premiums (DWP) last year; and
- Motor insurance, which experienced a lull in 2020, became the second-largest segment last year as motor vehicle sales grew.
As the general insurance industry continues to grow, GlobalData predicted the industry to further grow from $54.6 billion in 2021 to $73.6 billion in 2026 in terms of direct written premiums, an estimated compound annual growth rate (CAGR) of 6.4% over five years from 2021.
However, the significant growth predicted by GlobalData is under threat from natural calamities, such as Australia's costliest flood in February and March this year, which resulted in around $1.71 billion in claims costs.
“The industry is increasingly concerned that the frequency and severity of natural hazard events will significantly push premiums up and make some areas uninsurable,” KPMG said, emphasising that government intervention is crucial as the insurance industry alone might not sustain insurance in flood-prone areas.
“To create a more sustainable future for insurance, where insurance is affordable, the government will need to invest in mitigation measures to lessen the impact of these extreme weather events on communities,” it added.
KMPG also advised insurers to support the industry's sustainable initiatives. The Climate Measurement Standards Initiative, for example, aims to provide consistent and comparable financial disclosure guidelines under the recommendations of the Task Force on Climate-related Financial Disclosures. Last year, major insurers established an alliance committed to transitioning the members' insurance and reinsurance underwriting portfolios to net-zero greenhouse gas emissions by 2050.
KPMG further advised insurers to:
- Support wider disclosure of climate change scenarios by the insurance, banking, and asset-owner sectors in Australia;
- Demand or develop better climate modelling to further improve their risk practices; and
- Spearhead customer education by sharing insight and analysis and developing new products that encourage customers to undertake mitigation plans and improve their climate resilience.