Australia's general insurance industry has recorded mixed premium growth numbers for the June 2004 renewals period. Although dwarfed by life insurance, the general sector controls roughly A$76 billion ($54 billion) in assets and writes over A$20 billion ($14 billion) in annual net premium income. However, these amounts may be about to experience a period of prolonged inertia due to cut-throat pricing amongst competitors.
According to a joint JPMorgan and Deloitte survey, the domestic lines of insurance - household, motor and compulsory third party insurance - recorded a meagre 3% average increase in premium rates, while the change for the commercial insurance industry on average dropped by 5%.
Within the domestic lines of business, underwriters and brokers suggested that minimal premium changes in motor vehicle and third party insurance in the states of New South Wales and Queensland were inhibiting the growth of the sector. However, the household insurance component of the domestic line was consistent with industry growth trends, clocking up 6% increase in premium rates for the period.
Over the 12-year history of the survey, the 3% premium rate increase was one of the lowest numbers ever recorded.
On the commercial side, the premium rate numbers painted a far gloomier picture for the sector. The combined underwriter and broker responses indicated that premium rate changes for liability, professional indemnity and directors and officers insurance were in the black. However, the fire and ISR (property), commercial motor vehicle and various workers' compensations components of the general insurance industry were severally inhibiting the weighted premium rate average. In particular, the professionals pointed out that fire and ISR, and commercial motor vehicle insurance were hitting the sector's premiums, respectively contributing drops of 9% and 7% in rates.
Aside from less than robust premium rate numbers, the past few years have been extremely positive for Australia's general insurers.
Figures for the industry's gross premiums have enjoyed substantial augmentation over the past five years, particularly in 2003. Statistics published by the insurance industry's regulator, The Australian Prudential Regulatory Authority, suggest that by the end of September 2003, total gross premiums had skyrocketed by over A$11 billion from 2001.
Surveying 23 underwriters and 13 brokers, the JPMorgan and Deloitte report alleges that the main drivers of the sluggish premium rate growth in the sector came down to increased competition emerging in the arena.
As of September 2003, Australia boosted 111 general insurers authorized to write new business and an additional 32 licensed to undertake the run-off of existing portfolios. The flooded number of market players has unsurprisingly decreased in recent times, following large-scale consolidation and demutualisation of the industry since the late 1990s, in which over 25 authorised general insurance companies disappeared from the radar. Australia's highest profile departure came when HIH, the nation's second largest general insurer, collapsed in 2001.
Competition has largely increased in the writing of new business and at the higher end of the market. Squabbling between general insurers for sizeable corporate accounts has led to price reductions to gain business and has ultimately left many relying on smaller volume income to maintain competitive advantage.
The report goes on to propose that ongoing reduction in premium rates will eventually lead to a diminution in underwriting profitability in the near future, but will not greatly effect the sector's profitability as a whole.