Australian general insurers’ revenues are projected to grow 3.5% a year to reach $68.8 billion in 2020/21, according to analyst Ibisworld.

Revenues for this financial year are estimated at about $57.9 billion, rising to $61.3 billion next year.

The upbeat forecast reflects a combination of factors, including improved investment returns and healthy premium growth.

However, profit margins may face pressure from increased dominance of the major insurers as they seek mergers and acquisitions to strengthen their positions.

“The outlook for general insurers over the next five years is positive,” Ibisworld’s report says.

“Improving economic conditions are likely to drive industry revenue growth.”

Investment income – a key income source for insurers – is expected to increase as interest rates start to rise from historic lows in the past five years.

“Investment markets are expected to strengthen as both the local and global economies accelerate over the next five years,” the report says. “Interest rates are projected to rise over the period, boosting investment income for general insurance companies.”

The four major insurers – IAG, Suncorp, QBE and Allianz – are expected to extend their dominance of the industry as they step up efforts to stay ahead of the pack.

They have a combined market share of 54.6% by gross written premium, with IAG holding the biggest portion at 21.9%.

“The gap between the biggest insurers and other insurance companies is growing as major players pursue inorganic growth through acquisitions,” the report says.