General Insurance Industry: Yesterday, Today and Tomorrow

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2 General Insurance Industry: Yesterday, Today and Tomorrow Estelle Pearson Finity Consulting Pty Ltd 2014 This presentation has been prepared for the Actuaries Institute 2014 General Insurance Seminar. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.

3 What are we talking about today? Market structure Premium volume & composition Industry performance & profitability Regulation & the actuary s role Game changers through the ages Key emerging trends and issues

4 Market structure

5 Market structure 1980 NRMA South British United Royal Insurance Commercial Union Mercantile Mutual QBE Insurance MMI General AGC GRE NZI Other 2000 NRMA HIH QBE AMP Royal & Sun Alliance CGU Allianz Suncorp Zurich Fortis Other

6 Market structure 1980 NRMA South British United Royal Insurance Commercial Union Mercantile Mutual QBE Insurance MMI General AGC GRE NZI Other 2000 NRMA HIH QBE AMP Royal & Sun Alliance CGU Allianz Suncorp Zurich Fortis Other

7 Market structure 2000 NRMA HIH QBE AMP Royal & Sun Alliance CGU Allianz Suncorp Zurich Fortis Other 2014 IAG Suncorp QBE Allianz ZURICH RACQ ACE COM INSUR AIG GRT LAKES Other

8 Market structure 2000 NRMA HIH QBE AMP Royal & Sun Alliance CGU Allianz Suncorp Zurich Fortis Other 2014 IAG Suncorp QBE Allianz ZURICH RACQ ACE COM INSUR AIG GRT LAKES Other

9 Premium volume & composition

10 Premium volume & composition Gross Premium 1980 = $3bn 2000 = $16bn Gross Premium 2000 = $16bn 2014 = $39bn W/Comp Casualty Motor CTP Home Fire W/Comp Casualty Motor CTP Home Fire

11 Industry performance and profitability

12 Performance & profitability Net profit: Net assets 25% 20% 15% 10% 5% 0% Return on Capital Pre HIH -5% Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 Jun-14

13 Performance & profitability 140% 120% 100% 80% 60% 40% 20% 0% Net Combined Ratio Net claims Net expenses

14 Regulation and the actuary s role

15 Regulation & the actuary s role Insurance and Superannuation Commission

16 Regulation & the actuary s role Number of GI Actuaries

17 Game changers through the ages

18 Privatisation and demutualisation Past game changers Australia s largest corporate collapse

19 Past game changers Electronic payments Computing speed and power

20 Future game changers? Car usage & technology

21 Future game changers? Data and analysis

22 Future game changers? Consumers

23 20% Shopping and switching Proportion of customers who shop/switch at renewal 15% 10% 5% 0% Shoppers Switchers Source: Roy Morgan Australian Population survey

24 External On-Line Survey Switching behaviour Finity Staff Survey 60% 6 60% 6 50% 5 50% 5 40% 4 40% 4 30% 3 30% 3 20% 2 20% 2 10% 1 10% 1 0% Every year Once every few years Rarely Never 0 0% Every year Once every few years Rarely Never 0 Serious Non-Serious Quotes obtained Serious Non-Serious Quotes obtained Question: How often do you switch insurer for motor insurance? How many quotes do you generally obtain when comparing competitor quotes?

25 Price is the most important consideration Price Level of Cover Reputation Product Features Simplicity - information / Multi-policy benefits Simplicity - Application Flexibility - Excess Flexibility - Payment Methods Flexibility - Payment Frequency Brand Recommendation Advertising Unimportant Important Price Reputation Question: How important are each of the following factors when choosing a vehicle insurance provider? Never Rarely Once every few years Every year Reputation (and brand) are equally important to customers who switch every few years and customers who never switch

26 Future game changers? Privatisations

27 Impact of privatisation Today Post Privatisation Other 22% Motor 25% Other 18% Motor 20% Workers Comp 4% Casualty 9% CTP 9% $39bn Fire 11% Home 20% Workers Comp 17% Casualty 8% CTP 12% $48bn Fire 9% Home 16%

28 Future game changers? Inflation

29 Impact of inflation 12% CPI 10% 8% 6% 4% 2% 0%

30 Key emerging trends and issues

31 Key emerging trends and issues Consolidations and new players No or negative industry premium growth in traditional products Rational competition but lower margins focus on operational efficiencies Individualised pricing and impact on insurance equation Changing consumer power