Increased competition is beginning to have an effect on underwriting profit. But despite a softening of the market, the industry is more disciplined than it was five years ago.

According to KPMG’s General Insurance Survey, this is the first time in many years there has been more diversity in annual results, with several market participants suffering reduced underwriting results, primarily as a result of competition.

KPMG Chair of Financial Services Andries Terblanche says the market has experienced a softening, but the industry has remained more disciplined and rational in its pricing than in previous soft cycles – such as before the HIH collapse in 2001.

He says competition is likely to continue next year and will even filter through to personal lines, but not to the same extent.

The 2005/06 year was adversely affected by Cyclone Larry, but in broad industry terms it had a “tempered impact” on insurers’ results because the reinsurance sector bore a sizeable portion of the losses.

“With all listed Australian insurers reporting provisioning adequacy levels of 90% or higher, the industry continues to be one of the most solvent and well provisioned markets in the world,” he said.

“The industry is now strongly capitalised, and for the first time in Australia it is at the point where it is increasingly focusing on customer service against a background of high solvency.”

Mr Terblanche says general insurers will probably intensify their focus on customer service as a way of differentiating themselves from competitors. “For consumers, this means insurance companies will start to compete on attributes other than price, and I expect an increased focus on service levels for customers.”