It has been a tough year for Australian general insurers, and it’s not about to get any easier.

These are dark times, according to KPMG’s General Insurance Industry Review, with results from last financial year taking a double hit from a soft market and a spate of catastrophes.

However, the report also shines a light on key opportunities that must be seized by the industry.

“Without doubt [insurers] can no longer do ‘more of the same’ and expect to stay ahead,” KPMG says.

For the year to June 30 the industry’s gross written premium was flat at $32.48 billion, with small gains in domestic home and motor and compulsory third party offset by a contraction in other classes.

The industry loss ratio increased to 67.2% from 61.6% the previous year, and the combined operating ratio deteriorated to 93.5% from 87.9%.

Profits fell 23.6% to $3.74 billion, primarily driven by continued competitive pressures on premium rates and frequent natural catastrophes.

Cyclone Marcia, heavy storms in NSW and southeast Queensland, hailstorms in Sydney and Brisbane and bushfires in SA together cost the industry $3.6 billion.

This was partially offset by improving investment returns, as insurers revisited investment strategies.

The pressure will stay on insurers well into next year, as challenger brands continue to grow at rates well above the industry average and take market share.

“Despite top-line pressures, insurers will need to continue investing in their future to stay ahead of their peers,” the report says. “It is imperative they shift their focus to identifying and developing technologies to enhance the customer experience in an increasingly digital world.

“The ability to embrace change will be essential in this rapidly evolving environment.”

KPMG highlights the main risks and opportunities for insurers, starting with new entrants.

“There is a sense that the traditionally closed insurance sector is now open for business,” it says. “It is a matter of recognising that this is an issue that simply won’t go away.”

If anything, competition is set to intensify, with Google, Facebook and China’s Alibaba likely to have Australian insurance on their radar.

But insurers can take positive action, including adding flexibility and agility to innovation processes and strategies, the report says.

They could also consider working with or acquiring innovators, rather than fighting every new competitor that emerges.

Driverless cars present a new challenge, with insurers forced to address fundamental issues as liability passes from drivers to vehicles and systems.

Some analysts estimate autonomous vehicles could become mainstream as early as 2020, but in the meantime KPMG believes insurers should promote the virtues of telematics.

Benefits include attractive pricing, instant crash notification, convenience and control of premiums, and feedback on driver safety.

“We believe… Australian insurers will need to embrace telematics quickly or risk disruptors securing a piece of the market,” the report says.

Social media represents risk and opportunity for insurers.

A company’s reputation can be damaged in a matter of minutes, which has created a market for insurance policies to tackle the risk.

Trust in brands is increasingly derived from online ratings, digital experiences and social media.

“The Facebook page and Twitter account may offer useful ways to push new products and messages to ‘followers’, but they are far more powerful when used to actively solve customer concerns and improve the customer experience,” KPMG says.

Big Data presents further opportunities – but few insurers are ready to take advantage.

Companies need to create a culture of experimentation and a flexible data governance model, KPMG says.

“Ultimately, the biggest technology risk for Australian insurers is that they are left behind in the race to turn data into insights, and insights into value.”

Cyber insurance is the classic double-edged sword, with booming opportunities but limited understanding of the risks.

Insurers must become much more sophisticated in their approach to assessing, quantifying and managing cyber risk, the report says.

Asia-Pacific Head of Insurance Accounting and study author Scott Guse told insuranceNEWS.com.au that while the opportunities highlighted will not give immediate rewards, they cannot be ignored.

“They will increase revenues for companies in later years, they won’t be profit-producing initially,” he says. “But insurers cannot afford to ignore them.

And the consequences of inaction would be dire, Mr Guse suggests. Insurers would “become redundant, and others will overtake them”.