While the rest of the world concerns itself with new regulatory challenges, in Australia the buzzword is competition.

The latest KPMG report – Getting the balance right – notes Australian resilience to the downturn, with local insurers looking well placed compared to their international counterparts.

The effect of the downturn has had a clear effect on the 392 executives surveyed by KPMG from 47 countries. While 35% of global insurers are worried about macro-economic conditions, the issue is barely a blip on the local radar at 4%.

More than half of the local insurers surveyed said their business performed above expectations over the last year, compared to just a third of global respondents.

KPMG’s local Head of Insurance Brian Greig says while increased regulation is regarded as a potential barrier to growth among 46% of insurers in foreign markets, it isn’t such a concern here, where close supervision is a way of life.

“Our regulatory regime was enhanced and continues to evolve since the collapse of HIH in 2001, with the flow-on effects positively benefiting our industry,” he told insuranceNEWS.com.au. “Risk and capital management have been a prime focus.”

Others have now caught on. Risk has rocketed up the agenda worldwide, with 51% intending to improve risk-based decision-making. International developments such as Europe’s adoption of the Solvency II regulation are expected to bring foreign markets up to speed with (and possibly beyond) Australia’s level of regulation.

It’s clear local insurers performed soundly during the downturn, reinforcing a generally stable history (HIH aside) that has attracted some of the biggest and best foreign insurers.

Among the newest to arrive on the local scene is Progressive Direct, backed by giant US personal lines insurer Progressive Corporation. It comes in the wake of other niche players such as Real Insurance and Youi.

That has clearly caused existing insurers to sit up and take notice. The KPMG survey found 46% of Australian insurers rate new sources of competition as the key barrier to future growth. Internationally that figure is just 32%.

Though the newcomers have their work cut out in making a big impression on a personal lines market dominated by Suncorp and IAG entities, signs suggest they are up for the challenge.

“Progressive Direct has a fantastic reputation in the US,” Mr Greig told insuranceNEWS.com.au. “It’s a well-rated organisation and anyone who has gone on study tours overseas has often gone to see them.”

New market entry is not just confined to foreigners. Domestic players include Australia Post and Coles, which has also dipped a tentative toe in the market. Traditional players have reacted by rolling out their own alternative brands. Think Bingle and The Buzz, to name just two.

But it’s not just the competition that gives Australian insurers pause for thought.

Some 58% of local insurers ticked the box for “scarcity and high cost of capital” as their biggest concern – a natural reaction if they’re preparing to snare a rival or two.

“We’ve seen over the past six to nine months that local insurers did raise more capital,” Mr Greig told insuranceNEWS.com.au. “While there’s a lot more liquidity around now, taking advantage of a sizeable acquisition by readily raising a large amount of capital or debt may be difficult.”

It is clear that Australia’s relative resilience to the worst of the downturn was no accident. While the robust “twin peaks” system of regulation deserves some of the credit, major Australian insurers have also stuck to their knitting.

Despite some underwriting losses of late, Mr Greig says local insurers rely on a probability of adequacy ratio that in most cases soars above minimum requirements set by regulators, putting Australian insurers in a good position to pay claims and release excess funds to profit.

“We have a well-capitalised and reserved general insurance industry,” he said.

The lingering memory of HIH has further reminded local insurers not to neglect the basics. Though soft market conditions have lingered, when investment returns dried up as the downturn struck underwriting discipline and reserving nous came to the fore.

All of which has left major insurers relatively well positioned to take advantage of emerging opportunities in markets such as China, India and Malaysia.

Apart from QBE – which views the world as its acquisition oyster – IAG is also an example, with its joint venture SBI General set to commence trading through the State Bank of India next year.

“Those economies are growing quite rapidly as more people join the middle class and take out insurance to protect their assets,” Mr Greig said.

Poor performance is no longer possible in an increasingly competitive environment, but local insurers are moving into a new decade where opportunity abounds.