Welcome to RADAR, Taylor Fry’s annual look at how the general insurance industry is faring. Drawing on the latest APRA data, we explore the impacts for insurers, their customers and government, and share our insights on the obstacles and promise ahead.
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to explore the pressing issues and trends in this ever-evolving landscape
In an environment steeped in concern – for climate change, inflation, and affordability and availability of insurance – underwriting results in FY22 showed admirable resilience. With householders the only exception, all classes posted an underwriting profit. Even travel, which was dramatically impacted during the pandemic, showed some green shoots of recovery.
Is this a sign of better times ahead? The answer is not straightforward. Beneath this general picture of positivity, lies vulnerability as well as opportunity.
Complicating the scene are the lingering effects of COVID-19 and consequences of war in Ukraine, such as labour shortages and supply-chain disruption, resulting in higher inflation and rising interest rates. The considerable challenges in tackling the threat of cyber and adapting insurance to offer appropriate protection highlight the complexity of developing products amid fast-paced change.
In navigating these high-stakes uncertainties, a collaborative, considered and proactive effort by all stakeholders will be vital.
Our easy-to-read format lays out the key issues and considerations to help you see the way ahead more clearly, with a brief overview here to get you started …
- Overall profitability – Industry profitability as a whole was flat, with investment losses largely offsetting any growth we would have seen in underwriting profits. Looking within market segments, direct insurers saw profits after tax increase to $0.985B in FY22 from $0.552B in FY21. Conversely, reinsurers sustained severe losses of $62M in FY22, due to natural perils, following an FY21 profit result of $369M, and there seems little relief ahead. Typically bringing elevated flood levels, a third La Niña event is now underway in the Pacific, according to a recent declaration by the Bureau of Meteorology. This potential for ongoing natural peril losses will put pressure on premiums and profitability for direct insurers and reinsurers.
- Impacts of economic changes – Higher inflation is being felt in claims costs across several classes, adding further strain on the market through rising premiums and affordability hardship. The householders class, already experiencing affordability issues, particularly in the most disadvantaged flood-prone areas, is especially vulnerable. Rises in interest rates have led to one-off adverse impacts on insurer profitability but may help to increase investment income in future.
- Affordability and availability – Longer term affordability and availability of property covers in areas prone to natural perils remain a key anxiety, prompting the launch of the ARPC (Australian Reinsurance Pool Corporation) cyclone reinsurance pool in July 2022. Several other classes are also experiencing some availability and affordability stress. Professional indemnity covers for financial occupations and the building industry, and public liability covers for tourism and leisure are particularly affected. Adding further intricacy to the problem, underlying drivers of affordability and availability constraints differ for each class of business and the solutions are often multifaceted.
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