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How Australian insurers can achieve profitable growth in a challenging market

The Australian insurance industry has stayed strong even when faced with changes in consumer behaviour affecting the general market.

Overview

The Australian insurance industry recovered quickly from the global financial crisis of 2008 basking in an average return on capital of 15 percent by 2010. However, the residual effects of the financial crisis have driven a change in consumer expectation.

Whilst the local market is still expanding, insurers are experiencing slower growth and reduced profitability within some products lines due to a shift in consumer behavior and intense competition from challenger brands.

In our report we examine the current landscape and provide insurance companies with recommendations to ensure they are well prepared for the challenges ahead.

Background

This report examines the challenges insurance companies are facing in Australia. We looked at industry data, reviewed proprietary research and conducted a survey of 3,500 consumers to gauge the local market and answer three questions.

  1. What are the trends and forces shaping the market?

  2. What are the implications for insurance players?

  3. What will set successful insurance providers apart in the future?

Finally we considered the results in light of more mature economies around the world to get a better sense of what the future holds for Australian insurers.

Analysis

Our research identified a number of changes in consumer behavior and the competitive landscape that are shaping the insurance market within Australia.

  1. Slower product sector growth.
    Whilst home insurance products continue to be buoyed by market conditions heavily commoditized products such as car insurance have experienced a decline in growth.

  2. Competition is intensifying.
    Established Australian market leaders are under threat from new entrants challenging them on price and value. In a recent aided awareness study* three of the top 12 home insurance providers and five of the 12 motor insurance providers were challenger brands. Banks also have the potential to be formidable competitors due to their significant customer base and strong customer relationships.

  1. Consumers are more price-sensitive, and demanding.
    Concerns around the state and stability of the economy are causing consumers to become cautious spenders. This price sensitivity is driving them towards the cheapest brands who offer a range of features e.g. 24/7 multichannel management of insurance, rather than those with strongest reputation – brand switching is now commonplace.

  2. Consumers are more empowered.
    Accessing content across multiple channels using various devices is the norm for customers. They are extremely comfortable managing insurance related interactions online. 64 percent of those we surveyed use the internet to research companies and products**, whilst over 50 percent of motor insurance customers told us they obtain quotes online before purchasing***.

  3. *Global business intelligence provider, RFi
    ** Global business intelligence provider, RFi
    *** Global business intelligence provider, RFi

Recommendations

Forward thinking Australian insurance companies must react to changing market conditions by:

  1. Developing a deep understanding of their customers through detailed profiling in order to tailor offers, messages and overall experience.

  2. Defining their value proposition ensuring it is clear and compelling to the target audience.

  3. Leveraging analytics across value chains including product, pricing, claims fraud and campaign management.

  4. Establishing multi-channel capabilities and a digital presence to support cross channel transactions whilst lowering costs.

  5. Aligning their strategies with operating models to encompass core processes, technology and culture as well as customer needs.

  6. Adapting, evolving and improving within a dynamic environment. Being nimble will likely become the most important strategic capability a company can possess.

By embracing these six recommendations, companies will be better placed to outperform their competitors and achieve profitable growth.