Slow and steady
Finity’s annual industry health check says the softening market should hold no fear
By Bernice Han
The general insurance industry performed superbly last financial year, delivering a return on equity of 19% – its best in a decade.
Strong underwriting metrics, earn-through from years of sharp rate adjustments and a benign natural peril period were among factors contributing to the strong result.
However, signs of a dip are emerging, according to Finity, which predicts ROE will fall 6 points to 13% this financial year, “returning to within the target range” – defined as 10%-15%.
Industry ROE
“While ROE is projected to reduce in FY26, we still forecast every class to deliver returns in the target range or just below the target range,” the actuarial group says in its annual Optima industry review.
“We expect continued moderation in premium growth over the coming year (and, in some classes, reductions in premiums), which will place upward pressure on the combined operating ratio.
“This, alongside an increase in natural peril losses to long-term historical averages, lower prior-year reserve releases and lower expected investment returns, results in [the ROE forecast].”
Finity principal and Optima lead author Pravesh Ponna says slowing premium rate rises are a “natural part of the pricing life cycle”.
“I think the industry is entering a phase where it’s had strong profitability over the last year and the year before … so it’s well positioned to withstand the premium rate slowdown,” he tells Insurance News.
“So rather than it necessarily being a concern, it is an opportunity for the industry to maintain its focus on underwriting discipline, claims efficiency and customer outcomes. I think it’s really about maintaining pricing and underwriting discipline to make sure insurers and agencies are comfortable with the rates they’re writing in the current market … making sure it fits into their risk appetite.”
Improved operations thanks to investments in digital tools that support front- and back-end operations will be an asset for the industry as growth slows.
“Insurers are investing a lot in technology and we are starting to see some early signs of those efficiencies emerge,” Mr Ponna says.
“In the next couple of years, we’ll really start to see that come through. I wouldn’t say we’ve seen all of the benefits of the investments yet.
“We’re still in that investment phase where insurers are building out their capabilities.”
The Optima review includes coverage of 12 general insurance classes – four personal and eight commercial. It is based on Australian Prudential Regulation Authority statistics, Finity’s analysis and other data.
Gross written premium grew 6% in 2024-25 – below the double-digit growth of the previous three years due to lower premium increases in personal lines and soft market conditions across several commercial classes, the review says.
Industry GWP growth
Personal lines GWP growth moderated to 9% from 15% a year earlier, reflecting dips in private motor and householders. Commercial lines GWP grew 3%, down from 8%. Finity says this is the lowest rate in eight years, as most classes recorded weaker premium increases.
The industry’s underwriting performance improved, producing a net combined operating ratio of 93%, 3 points better than the previous year.
The review says the result is “one of the best … in the last decade. This was largely driven by a 4-point improvement in the net loss ratio, owing to favourable weather, higher reserve releases and earn-through of rate increases.”
On the investment front, the industry notched a 6.5% return – its second consecutive year of record-high performance for the past decade.
Below are Finity’s assessments for key personal and commercial classes.
Private motor
Based on APRA data, GWP grew 8% in FY25 to about $17.9 billion. This makes for an average annual rate of 11% between 2019-20 and 2024-25.
Private motor GWP growth
Premium growth is expected to ease this financial year, amid lower rate increases in line with easing inflationary conditions and competition for market share.
Finity says the market has undergone significant consolidation, with Allianz and IAG buying motor clubs RAA and RACQ respectively.
Another deal – IAG’s bid for WA motor club RAC – was yet to be cleared by the competition watchdog at time of writing.
“These acquisitions mark a notable shift in market dynamics. Despite the recent motor club acquisitions, the longer-term trend is towards more diversified brands,” Finity says.
Householders
APRA finds GWP for householders grew 10% to about $16.5 billion. More moderate growth is expected this year, in line with broadly easing inflationary conditions.
“Current trends suggest stable underlying margins … supported by premium increases that match inflation,” Finity says.
“However, in the event of a more normalised weather-related year, we would expect industry profitability to reduce in FY26.”
Householders GWP growth
Finity says burst pipe claims now represent the largest attritional peril after weather, comprising more than 40% of non-weather attritional costs.
“One source of such claims is flexi-hoses, the rubber hoses often found connecting water to taps and fixtures.”
Underinsurance is an issue. A Finity study revealed 40% of losses are underinsured, with an average shortfall of 35%.
“Many insurers are embarking upon programs of enhanced communication, implementing tools to estimate replacement costs, and conducting targeted sum insured indexation and pre-emptive sum insured reviews.
“Tackling underinsurance, alongside regular sum insured indexation and pricing and product changes in a coherent strategy, can help sustain acceptable margins through cycles of inflation.”
Corporate property
The market “has well and truly entered the softening phase”, with premium reductions emerging in the first six months, followed by larger cuts in the second half.
“There are signs there is still appetite for insurers to continue offering rate reductions on well-performing and risk-managed accounts,” Finity says.
“Insurers have seen premium reductions in the mid-market and large segments of the market as competitive pressure increases, especially with more capacity coming through from Lloyd’s.”
Business pack
GWP grew 8% to $4.5 billion, primarily through premium rate increases.
The increase is lower than those in the past three years, when rate rises were around the double-digit mark, but is higher than in most years before FY22. “We expect GWP to continue to grow over next year, as insurers continue to reflect inflation in their pricing,” Finity says.
Direct business is estimated to represent less than 15% ($650 million) of total business package GWP.
“The direct/online channel presents a substantial opportunity, with a number of insurers responding by expanding into this channel over the past few years.
“A key driver of this is the higher profitability compared to the intermediated channel, driven by lower expenses (no commissions), and by a more profitable mix of business (for example more policies with just liability cover).”
Financial lines
A shift has emerged in the past two years, with premium rates continuing to fall in FY25 – and by more than in the previous year.
Finity says the profitability of recent years has attracted new entrants and more Lloyd’s capacity, contributing to a highly competitive environment.
“Some incumbents in the market are shifting towards a retention focus, and while growth remains on the agenda, maintaining underwriting discipline is gaining emphasis.”
Abundant market capacity has pushed insurers to reassess their offerings to differentiate themselves.
“Specialist underwriting agencies are emerging to address underserved niches and higher-risk areas, providing tailored solutions in sectors where traditional insurers remain hesitant.”
