General Insurance Australia
Industry Report
General Insurance in Australia
The industry is forecast to improve over the next five years, as local and global economies are projected to record stronger growth. Interest rates are expected to rise too, which will likely boost investment income for insurers.
The industry includes general insurers and reinsurers. General insurers underwrite insurance policies to cover individuals and businesses' financial loss associated with property, casualty, liability and other risks. Underwriting involves assuming risks and assigning premiums. Reinsurers assume all or part of the risk associated with existing insurance policies underwritten by other insurers.
The occurrence of natural disasters has resulted in a rise in the number of claims, forcing industry operators to raise premiums. The COVID-19 pandemic has also led to a shift in types of insurance claims.
DEMAND DETERMINANTS
OVERALL ECONOMIC ACTIVITY | CONSUMER WEALTH | DEMOGRAPHICS | BUSINESS AND CONSUMER CONFIDENCE | RISK PROFILES | PREMIUMS
Demand for products from the General Insurance industry is affected by many factors including: overall economic activity, consumer wealth, demographics, business and consumer confidence, risk profiles and premiums. Wider economic activity affects insurance demand through exposure to risk. Higher employment leads to more risk associated with workers' compensation. A strong economy and labour market increases disposable income, driving household consumption and wealth and therefore, generates greater demand for insurance. Similarly, any decrease in overall economic activity can reduce household coverage, as wealth and consumer expenditure decline. Demographics also influence insurance demand, with individuals' coverage and expenditure increasing as they age. Premiums affect coverage levels and the volume of policies offered. Premium increases can constrain demand and reduce coverage as consumers self-insure when insurance costs outweigh potential payout gains.
OUTLOOK 2021 - 2026
Industry revenue is projected to grow over the next 5 years; driven by the anticipated economic recovery from the recession which is likely to generate demand for general insurance products, providing insurers with the opportunity to grow premium revenue. Additionally, forecasted growth in the cash rate and bond yields will enable operators to generate higher investment returns. Adversely, strong industry competition is forecast to put pressure on profit margins as well as the effects of the 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services which is to come into effect as at 1 July 2021.
The major players are projected to continue to dominate the industry, intensifying price competition and increasing policy coverage. Strong competition is likely to impact Small/Medium Enterprises the most. Large insurers hold more capital, so they can bear higher pricing risks and are better placed to add further coverage to existing policies. Online aggregators have driven a rise in competition, as greater price transparency has generated additional pressure on firms to compete on price.
Larger insurers have a history of aggressive expansion through M&A, and further activity is projected which is expected to reduced industry enterprise and establishment numbers. Employment numbers are also anticipated to drop marginally, as key players continue to acquire smaller operators.
External competition is likely to increase as non-traditional insurers and large technology companies, such as Google, Facebook and Amazon, are anticipated to push into the industry. These companies have been making inroads into online user experience and customisation, and have demonstrated an ability to quickly enter and disrupt new markets. However, the pandemic has forced insurers to accelerate the adoption of digital technology.
The industry will likely face some technological disruption. While technological developments could increase competition within the industry, it also creates opportunities for industry players to to expand, given the growing popularity of cloud computing and business being conducted online.
Cyber insurance is becoming an increasingly popular area of general insurance, which typically covers losses from data theft and other IT-related risks. This market remains largely untapped and presents an opportunity for operators, given the complexity and risks of the cyber landscape.
Source: IBISWorld | General Insurance in Australia, March 2021
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