• 1000

Insurers’ profits rose sharply in 2022 to a 5-year high, KPMG’s annual review of the general insurance market, published today, reveals. Despite this upturn, driven largely by higher premium prices, KPMG is predicting a similar 10 percent rise in premiums this year, as insurers seek to combat rising costs.

The review, an analysis of insurers’ figures up to 31 December 2022, reveals an industry insurance profit of $4.95 billion last year, up 42 percent on 2021’s $3.5 billion. The increase was largely driven by a 10 percent rise in gross written premium to $0.59 billion – on the back of higher premium prices. The growth in gross written premiums was evident across all classes of business, though largest in home, commercial motor, CTP motor, and employer’s liability insurance.

But the rise in profits will not prevent further premium price rises, given the near-tripling of costs from catastrophes in 2022, notably the QLD and NSW floods at the start of the year. 

Scott Guse, KPMG Insurance Partner said: “Insurance is by its nature cyclical and only 3 years ago the insurers profits were minimal, due to huge claims from the bushfires. Profitability rose sharply in 2021, given fewer natural catastrophes, but last year’s increased profits, covered in this review, are really driven by higher premium prices and the volume of written premiums, as the industry had to deal with catastrophes surging again, with a subsequent rise in claims costs.

“The expectation of increasing frequency and severity of natural hazards, rising reinsurance costs, increasing inflation, supply chain issues and labour shortages will continue to put upwards pressure on premiums pricing. We anticipate that on average, premiums will rise by at least 10 percent throughout 2023.”

He added: “Improving resilience and thereby reducing the impact of extreme weather events on Australian communities is a key focus for the industry. This is seen as a must in ensuring insurance remains affordable to all, especially those who need it. To this end, the industry is looking for increased government investment, and to work together to develop a more resilient and affordable future for insurance in Australia. Disaster relief spending is too often an afterthought in Australia, and a more forward-thinking approach to managing catastrophe risk is required. Suggestions for public policy initiatives have included reviewing land use planning arrangements and amending building codes.”

The highest overall sector profit in 5 years saw an improvement in a key industry indicator – the loss ratio, which declined as the growth in net earned premium of 12 percent outweighed that of net incurred claims (5 percent), with reinsurance coverage reducing the impact on new claim costs. The underwriting result saw a notable 72 percent rise on 2021, meaning that the core insurance business was making profits. But investment income had a bad year, losing $1.25 billion compared to the previous year’s modest profit. 

Another notable aspect of last year’s results was the releasing of COVID-19 business interruption provisions, following a High Court ruling relating to business interruption claims which was largely favourable to the industry. Most insurers revised their provisions downwards, thus releasing the previous year provisions to boost current year profits.

Scott Guse said: “Cost discipline remained a key focus area for insurers and they have done a good job, with the expense ratio improving on the previous year, higher claims notwithstanding. This is despite continued raised levels of spending on technology, regulatory and compliance costs – insurers have continued to invest in automation in pursuit of customer and operational excellence.”

Top ten insurance trends for 2023

KPMG’s annual review also highlights ten trends that the firm believes will be important to the sector this year. These trends permeate through all areas of the Insurance value chain, and are expected to be ‘top of mind’ for insurers as they continue their journey throughout 2023.

  1. Resilience
    Insurers continue to face a higher exposure to natural perils, such as floods, bushfires and cyclones. Natural disasters also have a significant impact on people and communities. To enhance the country’s resilience against such events, insurers are encouraging government action to reduce both the risk and exposure.

  2. Reinsurance
    Reinsurance costs have increased exponentially in the last few years largely due to increased claims from weather-related catastrophes. The Australian Government cyclone reinsurance pool, which came into effect on 1 July 2022, is designed to improve the accessibility and affordability of insurance for households and small businesses in cyclone-prone areas. As the pool has only recently commenced operating, it remains to be seen how effective the structure will be in keeping the end customer’s costs reasonable and affordable.

  3. Technology modernisation
    Digital investment continues to be strategically important for insurers to remain relevant and be competitive.

  4. ESG
    Australian insurers are ahead of many companies in Australia when it comes to ESG but behind the pack globally. With the International Sustainability Standards Board (ISSB) expected to finalise IFRS S1 and IFRS S2[1] in 2023, ESG reporting is moving towards essential rather than optional.

  5.  Simplification and cost optimisation
    Insurers need to continue to focus on digitisation, simplification, productivity, automation and operating model adjustments across all aspects of the value chain to drive efficiency and cost reductions.

  6. Changing customer expectations
    Customers are increasingly looking for personalised, value-driven digital solutions and they want experiences that allow them to be in control of the process as well as having ongoing visibility of their status.

  7. Cyber 
    Cyber protection insurance continues to only be offered by a small number of niche players, and it is becoming increasingly difficult to obtain in the Australian market. Future government action may need to be considered to provide protection in this space.

  8. Data
    Enabling data-driven decision-making is one of the core pillars of APRA’s Corporate Plan. APRA’s five-year timeframe for the detailed data collection is ambitious and the timelines are more aggressive than those implemented by other global regulators.

  9. IFRS17
    Significant investment has been made by insurers to date to comply with the new accounting standard IFRS 17, however, further investment will be required to successfully embed strategic solutions.

  10. Regulatory and compliance transformation
    Regulatory change continues to accelerate, both in the quantum of changes and the reduced implementation timeframes, leaving insurers struggling to keep up. The pricing promises review, CPS 230, CPS 190, FAR and CPS 511 are among the regulatory changes currently being implemented.

[1] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures

For further information

Ian Welch
KPMG Communications
0400 818 891