Australian insurers face their “toughest-ever environment” despite profits increasing 61% last financial year and gross written premium (GWP) rising 9.2%, KPMG warns.

“As a whole, insurers are walking a tightrope, with historically low investment market returns, increasing competition from new non-traditional market entrants and additional pressure on premium pricing as a consequence of concerns by consumers about affordability,” Insurance Partner Scott Guse said.

Industry profits reached $4.39 billion in the year to June 30, KPMG’s annual General Insurance Survey says.

This compares with $2.73 billion the previous year, with premium gains and a relatively benign catastrophe environment driving the improvement. GWP grew to $31.79 billion.

But Mr Guse says the industry faces various challenges and warns premium gains may slow to 3-4% this year.

“The increase in premiums is starting to taper off already,” he told insuranceNEWS.com.au.

“This year I would envisage premiums would continue to increase, but I would have thought the average increase would be more in line with inflation.”

Rising competition and a continuing benign catastrophe environment could lead to premium reductions in following years, he says.

New regulatory and capital requirements add an extra layer of complexity to the market.

Last year premiums were lifted by gains in short-tail classes such as property and motor, as insurers recovered higher reinsurance costs. Rates for long-tail classes increased to reflect reduced investment yields.

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