The industry will benefit from improved economic conditions in coming months, says KPMG in its annual General Insurance Industry Survey.

The firm expects housing construction, below average for two years, to rebound over 2011/12, with Sydney and Brisbane to lead growth.

“This will provide support for an increase in the rate of take-up in general insurance and house and the contents insurance over this period.”

It also notes an improvement in vehicle sales in recent months and says the higher Australian dollar will reduce the price of imported cars, which could improve sales and insurance take-up.

Government demand for insurance may also rise as a result of policy changes following the Queensland floods and review of disaster insurance.

Higher employment numbers will support increased demand for workers’ compensation insurance, but KPMG Insurance Partner Ian Moyser says employment within the industry will not keep pace with its growth because more services and processes will be automated with the shift to online processing.

He says insurers are making substantial efforts to improve their operational efficiency and the industry is going through a transformation as companies work on improving their resilience to events and the effectiveness of their claims operations.

“A number of Australia’s insurers are in the midst of transformational efforts designed to streamline their business operations, addressing the legacy of multiple brands, incomplete integration from earlier mergers and acquisitions, legacy platforms and dispersed operations,” says the report.

Companies are pursuing strategies to achieve a better customer experience, delivered more consistently, and replacing core claims systems to integrate across geographies, channels and brands.

Investment in claims-handling has aimed to increase the consistency of decisions, manage risk better and build effective feedback loops between claims, underwriting functions and intermediaries. 

KPMG finds insurers are also working to revise and simplify their operating models, consolidating scale and expertise and pursuing shared services and outsourcing where it makes sense.

The survey is in its 25th year and the researchers note that in 1985 Australia had 172 insurers, compared with 128 now – “a number of which have the same ultimate owners”.

The population has risen from 15.6 million to 22.6 million in that time.

In 1985, state government insurers and mutuals dominated the scene. This changed with privatisation, demutualisation and takeovers and a number of foreign players also withdrew from the market or were acquired, although more recently this trend has reversed.

The report says banks have entered the market and there are more business models.

During the 1980s and the first half of the ’90s the dominant channel for personal lines was either through agents, brokers or branches but there is an increasing move towards buying insurance through call centres and about 10% of personal insurance is now sold online.

This has enabled new entrants to enter the personal lines market, but brokers remain the key channel for commercial insurance and over the past five years have averaged more than 70% market share of the commercial market, where large corporates rely on their advice. 

A comparison of the top 10 insurers in 1986 and 2011 shows QBE is the only name to figure in both lists, as companies have been taken over or changed names.

The top three in 1986 were NRMA Insurance, the NSW GIO and Queensland’s SGIO.

The industry now is dominated by six companies, which write 85% of premium income.

However, despite the concentration, the report notes the level of competition remains strong “with ever-increasing transparency of pricing and policy features due to both financial services reform and greater information availability”.

Investment income has increased significantly and there have been no failures since HIH collapsed in March 2001.

The report says insurance has “evolved into a robust, competitive industry” that is focused on achieving appropriate return for the shareholders balanced with security and customer service for policyholders.

It says there is little doubt that formalised risk consciousness and sound underwriting practice are now much more firmly embedded in the industry than they were 25 years ago.