Insurers’ profits leapt 281 percent last year from a low in 2020, KPMG’s annual review of the general insurance market reveals.

An 11 percent increase in Gross Written Premiums (GWPs) drove the recovery as profits rebounded to $3,486m, compared to just $915m in 2020, when the bushfires and other disasters hit insurers’ performance.

While the upturn is positive, levels still remain below those recorded in 2017 to 2019 and there is concern that the ongoing risk of further natural disasters, such as the flooding in Queensland and NSW, could prevent profits rebounding further.

Scott Guse, KPMG Insurance Partner, said: “Insurance is cyclical by nature, and the prevalence of natural disasters was primarily to blame for a poor 2020 – and a lack of these last year saw strong gains in 2021. But we will see the current Queensland/NSW floods hitting 2022’s figures, with early cost estimates of $2.32bn being reported by the Insurance Council of Australia. This will have an inevitable impact on premiums going forward.”

“Climate change and ESG awareness will continue to be a key focus for all Insurers. Modelling predicts the frequency and seriousness of natural peril events will only continue to rise, while stakeholders are becoming increasingly demanding of compliance and action on climate issues. The increased likelihood of similar events going forward is a concern and could lead to more ‘up and down’ years in future. Without preventative actions, more areas are expected to become uninsurable and the levels of under-insurance will inevitably increase.”

KPMG’s annual review showed that investment income was a poor performer, falling by 64 percent from 2020 to just $510m. This was a major contributor to overall profits being still lower than 2017-19. But claims costs improved and the loss ratio was lower, falling from 75 percent in 2020 to 66 percent.

The pandemic also continues to affect premiums in some areas of the industry. Travel GWP was $234m in 2021 compared with $1.197bn in 2019, pre-pandemic. While this is expected to improve as borders re-open, the ongoing risk of new variants and changing rules around international travel and isolation requirements mean the recovery could be slow.

Scott Guse said: “Looking forward, the industry will be focused on improving digitisation, particularly in customer-facing processes, to deal with a post-COVID world. This will also enable better responsiveness to legislative changes and transitioning financial reporting to the new IFRS 17 standard.”

Detailed findings from the report

  • The cost discipline of insurers has tightened during 2021, with a decrease in the expense ratio from 25 percent to 24 percent. This improvement comes despite continued spending on technology, regulatory and compliance costs. Although overall expenses have increased for the industry, the premium growth rate has exceeded the expense growth rate, resulting in a reduction in the expense ratio.
  • The industry’s capital coverage at 31 December 2021 for insurers increased marginally (2 percent) to 1.71 times the APRA prescribed capital amount. This compares to 1.68 times the 2020 figure.
  • The average GWP quarterly increase for 2021 was 2.6 percent. The growth in 2021 reflects the highest percentage movement we have seen in recent years and given it is partly driven by rate increases (in personal products such as home and motor and in commercial products, such as property and professional indemnity), it demonstrates the continued hardening of the market.
  • Looking ahead, insurers are forecasting continued growth in GWP with ongoing rate increases expected for 2022. Continued growth in natural hazard events is likely and the QLD/NSW floods in March 2022 will be a significant cost to the insurance industry.
  • Australian listed insurers had mixed results in relation to their own share price performance. QBE outperformed the ASX 200 index with a 33 percent increase for the 2021 year. Suncorp was largely in line with the index up 12 percent , whereas IAG and Genworth saw a decrease in share price of 10 percent and 6 percent respectively. 

Top 10 key trends

  1. Regulatory and compliance transformation will continue as further changes are implemented, particularly around APRA’s focus areas of resolution and crisis management as well as the sustainability of insurance products for long-term consumer benefit.
  2. Simplification and cost optimisation remain a focus, due to declining investment returns and increased claims and operational costs, challenging profitability.
  3. Changing customer expectations around experience will be important – our research indicates insurers continue to lag behind other sectors with few personal lines insurers seen as delivering ‘best in class’ customer service.
  4. Pricing and affordability will become more data-driven, with advanced analytics to allow more informed decision-making about risk.
  5. Digital, data, innovation, and cyber security will take on increasing importance as insurers adapt to COVID-driven changes in consumer preferences.
  6. The struggle for talent will intensify, partially due to the evolving hybrid work environment.
  7. Mergers and Acquisitions, and integration of Insurtech capability will continue to be sought throughout 2022 and 2023.
  8. IFRS17 implementation has been disrupted by COVID, but insurers must make sure they remain on track to comply.
  9. Climate change will continue to pose an ongoing exposure risk with more frequent, more severe events likely to create significant costs.
  10. ESG is increasingly a key stakeholder concern, having detailed reporting structures in place should become common practice to address internal and external interests.

For further information

Ian Welch
KPMG Communications
0400 818891