Insurers in mature markets like Australia may suffer a 50% decline in profits within five years if they don’t find a way to deal with slowing growth, market disruption and shorter insurance cycles, a new report warns.

A paper from consultants PwC says average earnings before interest and taxes at the top 29 global insurers is declining by 9% a year. And the Australian market slowdown is even worse.

It says net annual premium growth in Australia is “slow and volatile” because of downward pressure from risk improvements like driverless cars and connected homes. That in turn is driving lower claims frequency.

The report warns that insurers may become unprofitable in mature markets if the trend continues, threatening the industry’s sustainability.

“Acknowledging inherent volatility associated with pricing cycles, the increasing pace of innovation and other disruptive challenges, extrapolating the current trends implies insurers in mature markets could see their profitability shrink by 50% or more, assuming no material shift in strategy,” it says.

“Insurers need to respond in a substantial way to arrest this decline and continue to grow further.”

Globally, there was only 2.5% growth in gross written premium in the past 15 years, and insurers haven’t found large-scale efficiencies to offset slowing growth, PwC says.

Global insurance cycles are also shortening from five or six years to just two or three years, making the market more volatile. Risks are shifting from being stable, cyclical and high volume to more complex and long-tail.

PwC says insurers should use data and a digital operating model to improve the profit of their core business, “informed by customer segmentation”, and start looking to markets linked to insurance to build other revenue streams like home safety products.

It advises insurers to refocus their strategy on customer experience and operational efficiency, improve performance and accountability and develop a better understanding of how risk affects products from operations through to claims.

“The winners of the future will be those who can fundamentally shift their thinking, understand trade-offs and be bold enough to make tough strategic choices.”

Read the report here.