Profitability remains a challenge for Australia’s general insurance industry due to declining investment returns combined with rising claims and operational costs, says professional services firm KPMG Australia.
As a result, this leads to a continued focus on simplification and automation throughout the value chain, KMG says in a report titled “Building a Sustainable Future – General Insurance Industry Review 2022”.
The report indicates that:
– The compound annual growth rate (CAGR) of the general insurance industry is expected to increase from 0.9% to 3.4% over the next five years
– Overall investment performance declines largely due to holdings of fixed rate assets
– The status of business interruption claims related to COVID-19 has yet to be finalized by the Australian courts
– Insurers are seeing higher claims costs due to inflationary pressures in auto and home portfolios
– The still high costs of natural risks are affecting insurance margins.
KPMG Australia suggests several ways insurers can respond to the headwinds they face. The recommendations are:
– Continue to focus on digitization, simplification, productivity, automation and operating model adjustments in all components of the value chain to improve efficiency and reduce costs, for example by identifying key experiences in digitizing end-to-end and designing some processes with human interactions for value-added activity
– Build data and analytics capabilities to enable informed decision making around risk, pricing and impact on profitability
– Leverage third-party data sources for more advanced risk and pricing decisions
– Negotiate rental terms for office space operating at reduced capacity due to COVID and hybrid working.
