Welcome to RADAR 2020, Taylor Fry’s inside look at the general insurance industry, the state of the market and what it means for insurers.
Here’s an overview of the highlights from RADR 2020, our class-by-class analysis to the end of an eventful FY2020 …
- While pandemic concerns have dominated headlines, the longer-term impacts and risks of a warming climate remain as urgent as ever. This shows in the overall underwriting results for general insurers, which worsened slightly over the year to FY2020, affected by catastrophic weather-related events in excess of $5.2B. The extreme bushfire season led to a NSW inquiry and a royal commission aiming to improve how we mitigate and respond to natural disasters.
- Insurers have been significantly impacted by COVID-19, though experience varies by class of business. Travel insurance has been hit particularly hard, experiencing falls in premium and surges in claims. Ongoing uncertainty in the travel industry is also affecting staff engagement and morale. Other classes such as motor have had the lowest loss ratios on record. The ability of insurers to rely on certain forms of pandemic exclusions to deny business interruption claims is being tested in the courts. There are likely to be adverse impacts ahead for most lines of business, as poor economic conditions and increasing community hardship constrain premium increases and pressures on claims continue.
- Regulation of insurer conduct and disclosure obligations continued to strengthen in the aftermath of the Hayne Royal Commission, heralding a cultural shift in the way insurers deal with their customers. Implementation timelines for several initiatives have been extended by six months in recognition of COVID-19, though insurers have fast-tracked their support for customers who are experiencing vulnerability and financial hardship under the new 2020 General Insurance Code of Practice.
- Profitability for many commercial classes continue to be under pressure. Profitability for commercial property was affected by catastrophic weather events, while directors and officers have been adversely impacted by class actions over several years, with potential for the recent economic downturn to instigate further claims activity. Elevated cyber risk has also raised the potential for ‘silent cyber’ claims to impact several classes of commercial insurance, where an insurer may have to pay claims for cyber-related losses under a traditional insurance policy not designed for the purpose.
- Insurers are anticipating an increase in primary and secondary psychological claims in workers compensation. These are expected to arise from changes to work demands, shifts in working arrangements and COVID-19-related restrictions.
- Overall reserve releases on long-tailed classes were subdued during FY2020, which put further upwards pressure on incurred claims and loss ratios. Public and products liability as well as professional indemnity experienced reserve strengthening during FY2019 and again in FY2020, which contrasted with several years of reserve releases in the preceding years.
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