The potential entry of newcomers in the SME business pack product line could upend the market dominance of IAG, Suncorp and QBE, a Macquarie Research report predicts. 

At present the three insurers control about 64% of gross written premium (GWP) in the segment, as well as 81% of the profitability generated. 

IAG has the biggest GWP share at 27%, followed by QBE on 20% and Suncorp on 17%. 

“Based upon our industry meetings, we understand a number of new insurers will enter this market over the coming 24 months, potentially placing profitability at risk for the incumbent insurers,” the report says. 

“We conclude [that] not only is GWP at risk for IAG, Suncorp and QBE, so is profitability – be it from an exposed cost base, rising broker commissions or lower loss ratios as price competition increases. 

Macquarie Research says the new players are targetting the SME market because business pack insurance is one of the few commercial products that is consistently profitable. Premium rate growth per policy for business pack went up 4.8% in the June quarter. 

They are prepared to offer higher broker commissions and operate on a lean outsourced underwriting expense base to gain a competitive edge over the incumbents. 

“We believe the only way to stem these losses is to run ongoing cost-out programs, and launch low-cost/outsourced models to compete with new entrants,” the report says. 

“We continue to see downside risk and maintain our cautious outlook on the sector.”