The insurance sector saw its profits increase by 281% in 2021, indicating a significant recovery from the impact of natural hazard events and the business interruptions caused by COVID-19 in the previous year, KPMG revealed in a recent report.
According to KPMG’s General Insurance Industry Review 2022, the average GWP quarterly increase for 2021 was about 3%, reflecting the industry’s highest percentage movement in recent years. Insurers are expecting continued GWP growth for 2022, with ongoing rate increases expected throughout the year.
In line with this market outlook, the KPMG report enumerated 10 emerging trends in the global insurance sector, outlining how these trends might impact the future of Australian insurers. The following are the top 10 general insurance industry trends identified in the report.
The last two years brought several regulatory changes in the general insurance industry with trends pointing to even more changes in the future. As such, insurers are advised to take stock of new regulations and policies, mobilising programs that will ensure compliance and help identify opportunities for competitive advantage.
Despite the growth seen by the industry in the last year, profitability remains to be a challenge due to declining investment returns coupled with increased claims and operational costs. Insurers should continue focusing on developing strategies that will drive efficiency and cost.
As technology becomes more integral to people’s daily routines, customers now have high digital expectations and are looking for personalised and digitally focused interactions with their insurers. In response to these expectations, insurers should leverage digital tools and transformation programs to tailor their onboarding and claims processes to the needs of their clients.
While profitability improved in 2021, insurers continue to be impacted by severe weather events that will lead to increased premiums and reinsurance costs. This translates to more pressure on pricing for growth and profitability, highlighting how important it is for insurers to have advanced data and analytics capabilities.
COVID-19 has changed the way insurance companies operate, providing new opportunities for growth. Aside from utilising the latest technology to meet the digital preferences of customers, insurers should look into how they can upgrade their systems and implement appropriate cyber security measures.
The COVID-19 lockdowns have also introduced a hybrid work environment for Australia’s insurers, adding to the challenge of attracting and retaining talent. As such, insurers must continue to invest in rewarding career benefits and opportunities for career development. They should focus on finding ways to connect with employees to figure out their needs.
There will be reduced M&A activity in the market this year. As predicted by the report, many companies will be focusing on integration, considering the continued M&A activity in Australia’s general insurance industry throughout 2021. Companies navigating integration post M&A activity should prioritise programs that will reduce business complexity.
The continued impact of COVID-19 has caused many IFRS 17 implementation projects to be delayed. As implementation costs continue to add up, many insurers have also encountered delays in updating their strategic software solutions to support IFRS 17 compliance. In response to these challenges, insurers should undertake a reality check of implementation road maps. They should examine their plans and resource allocations in relation to the 2023 transition date, preparing to pivot to tactical solutions for short-term compliance as required.
The climate crisis leaves insurers exposed to natural catastrophes such as bushfires, floods, and cyclones. Insurers should continue to support industry initiatives such as the Climate Measurement Standards Initiative and demand better climate modelling to improve risk practices.
Insurers around the world are becoming more and more mindful of environmental, social, and governance (ESG) responsibilities and the impact that their businesses could have on the rest of society. Companies should continue this trajectory by sourcing new data and developing tools to integrate ESG issues into decision making and risk management processes, along with other solutions that will integrate ESG into enterprise-wide strategy.
