Australia’s banks are starting to look closely at the $23 billion insurance sector as a way of maintaining profits as lending slows down.

After the most profitable results in decades for the top five insurers, industry sources say one of the big banks may buy a general insurance company in the near future.

The speculation has it that the bancassurance option would be appealing if insurers specialised in personal lines rather than commercial to enable the banks to cross-sell products to their customers.

The strength of the insurance sector was demonstrated in the recent half-year reporting season.

Gross premium income in 2003/04 rose by 12% to $23.58 billion, and underwriting profit before tax improved by 428% to $1.6 billion. Profit after tax increased to $2.511 billion from $968 for the Australian market.

KMPG financial services partner Martin McGrath says there is a lot of interest in the insurance sector.

“If you look at the success of an allfinanz corporate like Suncorp Metway, the attraction for banks is obvious.”

Mr McGrath says that as the banks’ net interest income has increased, the spread has narrowed. “There’s no doubt that banks are looking at alternative means of income.”