The annual Radar report shows householders was the only class to make a loss last financial year, a reversal in investment results drove overall profits higher and affordability pressures are a key issue for the industry. 

The Taylor Fry report takes a look at each of the main classes of insurance and identifies factors that affected performance in the past financial year and key issues for the future. This edition also takes a look more widely at the impacts of inflation and the increasing role of artificial intelligence. 

A focus on customer retention strategies will be critical given substantial price increases, while insurers should be alert to increases in the number of vulnerable consumers, the report says.  

Below are some of the findings in various classes: 

Domestic Motor 

Changes in driving behaviour following the pandemic have contributed to a reduction in the frequency of minor collisions and an increase in average severity, with changes in claims mix adding complexity to pricing. 

Claims inflation has been an issue, though repair costs and after-market vehicle values are now reducing from their peak due to the easing of global supply chain bottlenecks. 

Cost-of-living pressures may cause increased customer churn given rising premiums, affecting an area of business where policyholders have tended to show loyalty. 

Householders 

The Radar report says the class is in crisis after a perfect storm of more frequent and costly natural disasters, building materials inflation and ongoing supply chain pressures. 

Insurers have made losses despite raising premiums, and more rate increases are on the way, in moves that have implications for affordability and a potential increase in non-insurance or underinsurance. 

There’s no quick fix, but proposals from a recent Actuaries Institute report on flood cover affordability and public policy options are relevant. That report calls for insurance taxes to be replaced with a property-based levy, suggests means-tested subsidies for high-risk properties and promotes mitigation and resilience measures. 

Workers’ Compensation 

The increase in mental health injuries is continuing to test public and private schemes, prompting WorkSafe Victoria to propose reforms to restrict entitlement cover for people with stress and burnout claims. 

The Radar report says it’s the first scheme it has seen taking a step to limit coverage for mental injury, and those in other jurisdictions will be watching closely as they try to balance financial sustainability and premium rate increase. 

In WA, legislation that will introduce various changes is still to take effect, but insurers are advised to begin assessing the potential impact on claims costs, premiums and their operations. 

Commercial Motor 

After more than three years of consistent profits, insurers are expected to face headwinds from inflation and a weakening economy. 

Looking forward, although the supply of replacement cars and parts has improved, labour shortages persist, threatening a prolonged period of high costs.  

Fraud is becoming an increasing problem, after long being an issue in personal motor, and artificial intelligence is likely to be increasingly useful in detecting and preventing criminal activity. 

Commercial Property 

Despite economic challenges, rising natural peril costs and supply chain disruptions, commercial property has shown strong performance, with average premiums rising 15% over the past year. 

In the short term, likely premium increases as the market continues to harden in response to ongoing inflation and rising natural peril costs will benefit profitability. Longer term, the high inflationary environment may negatively impact profitability due to underinsurance, unless corrective action is taken.  

Supply chain disruptions are causing blowouts in average claims processing times. As a result, businesses might be tempted to consider cash settlements, despite the risk these may not adequately cover replacement costs.  

Public and Products Liability 

Insurers experienced a 96% combined ratio, 86% for current year exposures and an additional 10% for prior reserve strengthening.  

Increases in claim sizes and large claim frequency continue to drive up rates for select industries, and in response there has been an increased uptake of higher excesses and affordability challenges in some areas. 

Social inflation and its impact on costs remains a concern. Drivers include media scrutiny on abuse claims, legal expenses, rising medical bills and the increasing proportion of psychological claims in public liability and other liability-type classes, such as workers’ compensation and compulsory third party.  

Professional Indemnity and Directors’ and Officers’ 

Class action risk is continuing to evolve, with significant impacts on professional indemnity and directors’ and officers’ covers. 

There were 28 class actions filed in the first half of this calendar year, double the 14 class actions filed over the previous corresponding period, which may signal a return to the historically intense activity of 2017-21. 

Potential drivers include the impact of data breach incidents, legislative changes affecting litigation funding and reforms envisaged to the Privacy Act, while there are also implications from the Financial Accountability Regime. 

The report is available here.