Australia’s general insurers must adjust to a new reality, as the soft market finally starts to bite, according to actuarial consultant Finity.

The company’s latest Pendulum report, compiled in association with Deutsche Bank, warns negligible top-line growth and premium rate reductions will combine to compress margins.

Underlying insurance trading result margins lifted from 14.6% in 2013 to 14.9% last year, but are predicted to drop to 13.6% this year and 13.2% by 2017.

“When this reporting season kicks off, we’ll see quite a reduction,” Finity Principal and Pendulum co-author Andy Cohen told insuranceNEWS.com.au.

Gross written premium grew just 1% last year, with an outlook of 1.7% growth this year and 2.4% next.

Despite the obstacles, intense competition in personal lines is set to continue, with challenger brands increasing market share once more.

In such a low-growth environment, Finity believes insurers must look again at reducing claims costs, but without alienating customers.

“We think this focus on customers and their claims is long overdue,” the report says.

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