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May 2022

Australia: General insurers face headwinds in investments and cost control

Source: Asia Insurance Review | May 2022

Profitability remains a challenge for the general insurance industry in Australia because of declining investment returns combined with increased claims and operational costs, said the professional services firm KPMG Australia in a new report.
 
As a result, this is driving a continued focus on simplification and automation across the value chain.
 
The report stated that:
  • The general insurance industry’s compound annual growth rate (CAGR) is expected to increase from 0.9% to 3.4% over the next five years
  • Overall performance of investments is declining largely as a result of holdings in fixed interest assets
  • Status of COVID-19 business interruption claims is still to be finalised through the courts in Australia
  • Insurers are seeing higher claims costs due to inflationary pressures in motor and home portfolios
  • Continuing high natural peril costs are affecting insurance margins
 
KPMG Australia suggests several ways in which insurers can respond to the headwinds they face. The recommendations are:
  • Continue to focus on digitalisation, simplification, productivity, automation and operating model adjustments across all components of the value chain to drive efficiency and cost out such as identifying key experiences to digitise end-to-end and designing certain processes with human interactions for value adding activity
  • Build data and analytics capabilities to allow informed decision making around risk, pricing and impacts on profitability
  • Leverage third-party data sources for more advanced risk and pricing decisions
  • Negotiate leasing terms for office premises operating at reduced capacity due to COVID and hybrid working A 
 
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