The insurance industry has posted a 4% increase in profits to $5.01bn in the 12 months to June 30; while gross written premiums dropped 1% to $4.27bn, largely due to the one-off impact of regulatory changes to the compulsory third-party in NSW, according to KPMG Australia’s annual General Insurance Industry Review.
“While the industry’s headline profit-growth figure appears modest, it must be remembered that this was on the back of an exceptionally strong performance last year,” said Scott Guse, KPMG insurance partner. “To maintain that level rather than falling back is actually a very creditable showing. Favourable net perils experience and higher-than-expected reserve releases contributed to this result, which reinforces our view that the sector is on a cyclical upswing.”
KPMG said claims cost also improved, with loss ratio dropping 0.8% to 62.7%, due to the relative increase in net earned premiums offsetting the 1% rise in net incurred claims. Gross incurred claims, meanwhile, fell by 6%, due to benign catastrophe-claims experience and higher reserve/risk-margin releases.
The expense ratio saw a 0.2% drop from last year, reflecting continued strong cost discipline while the insurance margin rose by 0.2% to 16.2%.
Guse said the rise in insurance margin, a key metric in the sector, was driven by the digitalisation of customer communications and interactions, optimisation of sales and service programs, and redesigning of claims processes of major insurers.
“Technological advances globally continue at pace – although there is still room for improvement and we observe varied levels of progress by the established Australian insurers,” Guse said.
The industry saw a drop in investment income allocated to insurance funds, from $1.3bn in 2016/17 to $1.2bn this year, on account of the continued depressed interest-rate environment and conservative investment portfolios, KPMG said.