JP Morgan and Taylor Fry, an actuarial consultancy, have warned that insurance premiums will dip over the coming years thanks to a slowing economy.
The 2014 J.P Morgan Taylor Fry General Insurance Barometer
gives detailed analysis on the year ahead for the insurance industry and sees premium rates falling in both personal and commercial lines.
“We believe that premium rates in both personal lines and commercial lines are under pressures,” the report notes.
While lower premiums will continue to benefit consumers, the insurance industry is set to face some tougher times according to Siddharth Parameswaran, JP Morgan’s lead insurance analyst.
"The outlook for the next couple of years suggests that ... profitability has peaked about now," Parameswaran told The Australian.
"We think the industry faces some tougher times but some good news for consumers."
The growth outlook does not look good following a historically low growth rate throughout 2014.
“A confluence of factors has led to the GWP growth trends in the 2 quarters to September 2014 being the lowest they have been in the last 20 years…We don’t think there is any respite likely in the quarters ahead,” the report states.
Weaker underwriting profits for insurers will work alongside the economic slowdown throughout 2015 to dampen the insurance market, according to Parameswaran and he believes we can expect to see more mergers following the deals between PartnerRE and AXIS Capital
and XL Group and Catlin.
“On a global level, that is exactly what we're seeing. But one of the problems in Australia is that we already have a highly consolidated market," Parameswaran continued.
"My view is the 2014 second half is about as good as it gets on an underlying basis," Parameswaran said as the industry may have peaked following the Brisbane hailstorm in October.
The barometer details a lack of innovation in the insurance market, particularly from domestic insurers, and believes that product innovation could lead to an alleviation of pressure in the market.
However, the report notes an interesting balance between product innovation and technological advancement and the impact that better technology can have on claims.
“There are no new classes that domestic Australian insurers seem to be pushing in a big way to make up for some of the pressures we have seen. Most of the expansion into cyber insurance / pet insurance has been made by foreign insurers.
“Classes such as motor could see accelerated reductions in frequency from new technologies. There is even a risk that average claim sizes could start falling in classes such as motor due to the new technology, and the cost of that technology coming down. This is something we have not seen for a while.”