Insurers will struggle to raise premiums as the tough operating conditions that have depressed margins in the past few years show no signs of easing, KPMG says.

Gross written premium (GWP) contracted 0.3% in the June quarter and grew a mere 0.6% on average last financial year, it says in a review of the Australian industry.

While insurers have remained profitable, partly by keeping a tight rein on expenses, they have to find new ways of growing business.

“Competitive market conditions are expected to continue to put pressure on premiums,” KPMG says.

“Opportunities for top-line growth exist for those that capitalise on innovative products and technologies.

“Keeping ahead of the curve to grow the portfolio through meeting the changing needs of customers is now a reality, and those not prepared to be agile and keep up with the change in pace will likely miss the opportunities that are present.”

Insurers recorded GWP of $40.95 billion in the year to June 30, up 2.5% on the previous year. Profit grew 17.5% to $4.06 billion.

The loss ratio improved to 66% from 68.6%, and expense ratio was 25.7%, little changed from 25.8%.

“In an environment of challenging top-line growth, insurers have continued their cost discipline through cost optimisation and rationalisation initiatives, and the benefits of these continue to be seen in an ongoing improvement in the expense ratio,” KPMG says.

“It remains to be seen whether insurers can continue to find cost savings while also investing in innovation and new products to support growth. Opportunities exist in this market for insurers that are first to market with innovative new products.”

Australian insurers cannot afford to ignore emerging trends affecting the industry globally, including insurtech, new payment platforms, driverless cars and telematics.

“While many insurtech companies are looking to compete with traditional insurers by providing more tailored responses to customer needs, others see a key opportunity in helping traditional insurers solve their problems and create more customer value,” KPMG says.

“However, it is only recently that insurers appear to have started to recognise things need to change.”