APRA Quarterly Insurance Results - Motor & Home Deep Dive

The recently published APRA Quarterly Insurance results have provided insights into the performance of listed insurers and offered a glimpse into what the future may hold for the industry in FY24. While the overall results for the quarter were favourable at an industry level, a closer look at the Motor and Home Insurance segments reveals some challenges.

The Results

Year-to-Date (YTD) performance analysis reveals key trends in the general insurance industry. Householders' Insurance witnessed a notable 14% increase in Gross Written Premium (GWP) driven by a 12.7% rise in prices. However, despite the price inflation, the net earned loss ratio deteriorated by 3.7%, resulting in a negative underwriting margin of -7.1%.

Personal Lines Insurers are facing challenging times as costs are increasing at twice the rate of the market. In addition to that, there are regulatory hurdles to navigate, and managing consumer expectations is becoming increasingly difficult.

Householders Insurance: Mixed Results

Householders Insurance witnessed a notable 14% increase in Gross Written Premium (GWP) in FY23, driven by a 12.7% rise in prices. On the surface, this growth may seem promising, but a deeper analysis reveals some concerning trends. Despite the price inflation, the net earned loss ratio deteriorated by 3.7%, resulting in a negative underwriting margin of -7.1%. The increase in price was intended to improve profitability, but the higher losses incurred relative to the earned premiums indicate a decrease in overall profitability. This highlights the need for insurers to closely monitor loss ratios and manage costs effectively in the Householders Insurance segment. Strategies for risk mitigation should be implemented to improve profitability and sustain underwriting margins.

Motor Insurance: Profitability Challenges

In contrast to Householders Insurance, Motor Insurance experienced solid GWP growth of 13.0% in FY23, driven by a 13.5% increase in average written premiums. However, profitability in this segment declined significantly by 7.3%, primarily due to performance issues in New South Wales (NSW). This decline in profitability raises concerns about the industry's ability to maintain profitability despite price increases. The underwriting margin for Motor Insurance decreased from 7.6% to 4.5% in FY23, indicating potential challenges in managing costs and claims. Insurers operating in this segment must take a closer look at their operations in NSW and address any underlying issues affecting profitability. Implementing effective risk mitigation strategies and closely monitoring performance indicators will be crucial for sustaining profitability and ensuring a healthy underwriting margin.

The Bridge Annual General Insurance Report

Looking ahead, released in July, The Bridge's 2023 Annual General Insurance Report will provide a comprehensive assessment of the Motor and Home Insurance market. It will explore these trends and deeply unpack the key issues and strategies for each insurer. By staying informed and proactive, insurers can navigate the challenges presented by the current landscape and find opportunities for growth and profitability. Weathering the perfect storm requires a combination of astute risk management, cost control, and a commitment to enhancing customer experiences. With a strategic approach and a focus on continuous improvement, insurers can position themselves for success in the competitive insurance industry.

Our Product, Pricing and Underwriting practice is also working closely with key insurers to combat these issues. Please reach out to stuart.brown@thebridgeinternational.com.au if you would like to have a confidential chat.