The local insurance industry’s fortunes over the past year have been dictated by a stagnant economy and a government playing around the edges.

As insuranceNEWS.com.au has reported throughout the year, the market is being affected by a number of factors that have placed it in a position of exhibiting both “hard” and “soft” influences.

Competition is keeping premiums low, but falling investment returns – the worst in 30-40 years – are putting considerable pressure on insurers’ bottom lines. Insurers’ combined investment income in the year to September 30 dropped by $500 million to $2.9 billion.

Brokers have reported that underwriting is becoming more restrictive as insurers counter falling profit margins and brace for another year that’s likely to bring much of the same.

As for 2018, predictions are mixed, with insurers generally predicting rises in premiums. But economists have warned global influences will dictate whether premiums rise.

In the past year loss ratios fell as insurers concentrated on cutting costs, with considerable pressure being applied in the area of claims, according to brokers and actuaries. Statistics show the industry’s net loss ratio dropping in the year to September 30 from 70% the previous year to 66%.

As costs put the squeeze on established insurers, challenger brands in both commercial and personal lines become a factor. Far smaller but more nimble, the specialist commercial challengers and underwriting agencies have continued to do well over the past year.

The economic environment might have been expected to promote a higher number of mergers and acquisitions, but few of significant size have happened this year.

That’s not to say there haven’t been plenty of changes in ownership, but for the most part they have been more about selling off none-core assets.

Most notable was the announcement in June by Munich Re that it would sell its Great Lakes Australia underwriting company – a move that caught the market by surprise. Munich Re merely said the company wasn’t as profitable as it had hoped, and it would focus on reinsurance in this market.

In September Sydney-based travel insurance specialist Cover-More acquired Travelex Insurance Services, the third-largest retail travel cover specialist in the US, for $US105 million ($140.2 million).

That made Cover-More a strategic acquisition for any larger insurer wanting to add bulk to its business, which in this case was Zurich. The deal to take over the company was announced earlier today in an insuranceNEWS.com.au Breaking News.

And in November the Chubb brand took its place in the market, marking the disappearance of Ace from the scene following the merger of the two global companies late last year.

2016 may well be remembered for the rise of the innovators, with the largest insurers – particularly market leaders IAG and Suncorp – making major changes in strategic direction as they move to meet new market demands, and opportunities, brought on by technology.

Big Data is one area in which larger brokers and insurers have identified a differentiator that will give them market advantages, as they farm customer information from their extensive files and develop “personalised” products and initiatives.

Technology may also spell the end for many in insurance who have carried out low-end jobs that can be automated. Such jobs are already under pressure, with the Big Three insurers sending an increasing number of their clerical, simple claims and service roles overseas.

The need to invest in new ways to sell insurance – and to develop new products more quickly – has dominated the direction of the personal lines market at the top end. By year’s end the results of this abrupt navigational change were becoming obvious, with IAG and Suncorp moving aggressively into innovation and emphasising customer focus.

Most surprising was Suncorp’s decision to encourage customers to look across the wide range of its services, from banking through financial services to general insurance – a strategy that includes “concept” stores and a conviction that connected customers will take up the opportunity.

Natural catastrophes in Australia through the year – floods, bushfires and storms – kept insurers busy and, as our archives show, the usual range of problems was experienced. These mainly involved excitable and ill-informed politicians mouthing off about the industry and individual claimants with detailed grievances. It’s notable that the Financial Ombudsman Service recorded a significant lift in claims-related complaints during the year.

Climatically, the Bureau of Meteorology announced in May the end of a particularly sharp El Nino season that had brought bushfires to many areas and drought to others. The La Nina effect was named as the cause of a wet spring, bringing floods and storms across the east coast. But by December its impact was fading.

While the Australian insurance industry’s contribution to the politically malignant subject of climate change has been low-key at best, QBE Group CEO John Neal spoke up in March to warn global warming is real and insurers have a responsibility to help slow it.

On another weather-related matter, insuranceNEWS.com.au took its summer break last year with the threat of a reinsurance pool or mutual insurer being imposed on insurance in cyclone-prone northern Australia.

But a taskforce set up to investigate the options decided in March that the industry was right – the solution lies in mitigation, not expensive alternative schemes.

It was a significant victory for the industry, which faces a brace of new challenges stemming from political intervention – and these might not be so easy to bat away.

With the Turnbull Government returning from the July election with a slim margin in the House of Representatives and an even more fractious crossbench of independents in the Senate, political flights of fancy are having to be considered seriously.

While the industry has emerged relatively unscathed from legislative game-changers this year, it did involve some intense lobbying by brokers to stay clear of the onslaught to which financial services professionals were subjected.

With one exception. The year-end’s legislative cliffhanger relates to independent chieftain Nick Xenophon’s call for a government-run personal lines comparator website that would require the participation of all insurance companies – whether they like it or not.

It’s not something governments should be getting involved with, and the major insurers have always argued against comparators because they focus consumers on price and encourage them to switch more often.

But with Prime Minister Malcolm Turnbull needing negotiating points in the Senate to get his own legislation through, it won’t just be the heat that keeps many senior insurers sweating over the summer break.