Motor insurance profitability will continue for the near future despite a number of new players joining the market.

JP Morgan Senior Insurance Analyst Siddharth Parameswaran admits the impact of the new players on the market is still being assessed.

“It is not clear what the impact of the new players will be on profitability as yet – it is still very early days,” he told insuranceNEWS.com.au.

“I think it will take another two or three years before one can make a call on what their impact will be.”

In a presentation to the Institute of Actuaries of Australia general insurance seminar last week, Mr Parameswaran said the motor premium rates index has flattened in recent years hovering about 117 basis points.  

Adding to the profitability of the sector is falling motor loss ratios, at just above 70% this year – which is ahead of the forecast trend.

He says the established motor insurers are facing challenges in distribution with the rising use of the internet.

Mr Parameswaran says an estimated 7% of motor insurance is being sold through the internet and this is forecast to rise to 11% within the next two years. The five-year forecast by JP Morgan predicts almost 20% of motor insurance will be sold through the internet in 2014.

But at this stage online distribution isn’t seen as a threat to the profitability of traditional motor insurers.

“The internet is just another distribution channel with a slightly lower cost, but it still requires an investment in the brand,” he said.

“I think motor should be fine in terms of profitability for a while.”

Home insurance is also enjoying a period of profitability, although contents insurance premiums have steadied in recent years.

Mr Parameswaran says contents premium rates are about 150 basis points while building insurance is at about 190 basis points.

“I think in the short run the profitability in personal lines should improve on the back of the recent price rises seen particularly in home buildings insurance,” he said.

But profitability is being threatened by rising catastrophe events, with costs estimated to be more than $1.5 billion this year and the trend pointing upwards.