Insurers’ profits almost doubled in the 12 months to 30 June due, in part, to premium rate rises to recover reinsurance and catastrophe costs – but this lucrative streak is unlikely to last much longer.
Insurance profit rose from $2.7bn to $4.4bn, according to KPMG. The rise is said to be a result of earning of premium rate increases, particularly in property, which had been required to recover higher reinsurance and recent natural peril costs.
The rise in profit is also attributed to relatively benign catastrophe claims experience with Cyclone Oswald being the only event costing the industry in excess of $100m; and a mixed investment experience.
However, premium growth has slowed throughout the year. KPMG suggested this reflected the reduced need for insurers to increase premiums to recover the reinsurance and catastrophe event costs of recent years, and the fact that the introduction of flood cover is well advanced.
Analysts also put it down to the competitive market place as newer entrants actively market their brands and products. Other factors include the abolishment of the Fire Services Levies in Victoria and insurers trying to address the issue of insurance affordability.
KPMG Insurance partner, Scott Guse said the insurance industry is facing its toughest ever environment:
“Whilst the reduction in catastrophic claims together with the benefit of premium increases has combined to produce positive results for the industry as a whole, insurers are walking a tightrope with historically low investment market returns, increasing competition from new non-traditional market entrants and additional pressure on premium pricing as a consequence of concerns by consumers about affordability,” he said.
“Lean, efficient, innovative, agile and a specific focus on customer needs are likely to be the core attributes of successful insurers into FY14. Competitive pressures will see insurers that do not exhibit these traits falling behind the pack,” Guse added.
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