Australia stands out among global markets for reducing claims expenses and improving profit margins, a new report shows.

The local industry “recorded a 17.6 percentage point decline in its claims ratio, the highest of all the countries by a wide margin”, according to the study by consultant Capgemini and financial services industry association Efma.

The improvement is mainly due to lower claims costs, related to fewer natural perils.

Australian general insurers experienced “significant” improvement in profit margins, the report says.

“The resulting 15.7% margin was, along with Sweden’s, the largest in the world.”

However, lower interest rates reduced Australian investment income to $4 billion in 2013/14, with the investment ratio down 5.7 percentage points to 4.7%, the steepest decline among surveyed countries.

And insurance customers in this country reported “significant” drops in satisfaction, with Australia falling to eighth place from sixth in the world satisfaction rankings.

About 33% of insurance customers in Australia reported a positive experience for 2013/14, down 7% on the previous year.

The report says one reason is that insurers are struggling to keep pace with the digital demands of Generation Y (aged 18-34), who are increasingly looking for a more integrated experience.

More than half of Generation Y customers believe social media, online and mobile are the most important channels for engagement with insurers. The demographic makes up one-quarter to one-third of some markets and is of increasing importance, the report says.

“Falling positive customer experience ratings, coupled with a growing number of market disruptors such as Big Data analytics, regulatory change and economic uncertainty, threaten to shake the stability of the industry and require insurers to become fully customer-centric or risk losing their customer base to competitors and new entrants,” Capgemini Global Financial Services Chief Sales and Marketing Officer Jean Lassignardie said.

Worldwide, the positive customer experience rating dropped 3.7% to 28.9% last year.

The decline was worst in North America, down 8.3%, while Latin America fell 5.3% and Europe 3.4%.

Insurers perceive Big Data analytics as having the greatest impact on the industry, followed by regulatory change and economic uncertainty.

The survey received responses from 15,500 customers in 30 countries and five regions.

Another 165 interviews were conducted with senior insurance executives from more than 100 leading companies.