There’s no respite for Australian insurers, two years after record-breaking floods. The industry is dealing with an ongoing federal parliamentary inquiry into its response to those catastrophes while having to keep a close eye on an array of competing risks such as cyber threats and stiffer regulations.

Not surprisingly, the industry is feeling more stressed than its peers in other countries. A biennial PwC sentiment tracker found “anxiety levels” in Australia’s insurance industry are above the global average, suggesting that the local industry feels less prepared to handle risks.

PwC’s Banana Skins Index has an overall anxiety level of 3.41 points for Australia, up from 3.4 in 2021 and higher than the 3.21 points recorded globally.

The accompanying preparedness index stands at 3.1 points for Australia, below the global score of 3.2 and down 0.12 points from 2021. The anxiety and preparedness scores are based on a global survey conducted last year and Australian respondents include 14 general insurers, four reinsurers, one broking intermediary and three life insurers.

PwC says much has happened since the last survey in 2021 and insurers are feeling the pinch. The industry is still feeling the effects of “substantial recent losses” triggered by long-tail classes and natural perils, while factors such as claims inflation have affected margins.

“Australia’s insurers are particularly concerned by the risks stemming from cyber, regulation, climate change, reputation, technology, and talent,” the consultancy says.

“While facing these risks, insurers are also pursuing financial objectives, including pricing selection, cost management, growth and profitability. This balancing act is notoriously hard, but waiting and responding to incidents as they arise is not an option.”

PwC Australia Insurance Leader Antonie Jagga says rapid changes in the last few years, brought on partly by new regulations after the Hayne royal commission and also recent natural disasters, have left insurers feeling less prepared.

“Insurers in Australia are facing a period of rapid change; new regulation has been introduced, there have been a number of natural peril events, and customer demands and expectations are on the rise,” he told insuranceNEWS.com.au.

“This has created a complex business environment, and placed pressure on existing resources, such as people, time and finances. Australian insurers may consequently feel this pressure more so than their global counterparts with more diversified portfolios.”

The Banana Skins Index also asked insurers to rank the risks they fear most. In Australia, cyber tops the list, followed by regulation, climate change, reputation and human talent. Technology is next, followed by macroeconomy, cost reduction, political risk and change management.

The order of the risks does not surprise Mr Jagga.

“Given Australian insurers operate in a highly regulated environment, and are responsible for protecting customer’s personal information and assets, it’s no surprise that for the past few years we’ve seen cyber crime, regulation and climate change appearing in the top 10 ‘banana skins’,” he told insuranceNEWS.com.au.

“What has changed this year, is the rapid development of emerging technologies, such as generative [artificial intelligence] and the increasing sophistication of cyber attacks. These developments come at a time where corporate cyber exploitation events have been in the headlines, placing these concerns front of mind for our local insurance businesses.”

PwC says the risk of an incident is very real. In recent years, Australian insurers have been the target of significant attacks, including acts by disgruntled employees, ransomware incidents, and espionage-motivated attacks conducted by sophisticated threat actors.

“Insurers are a prime target because they hold substantial monetary assets and customer data from health details to property, from vehicles to pets,” PwC says.

On artificial intelligence and quantum computing, PwC says the technologies could be used by cyber criminals to defeat and bypass the existing cyber defence capabilities of organisations.

At the same time, new regulations, such as the application of the Financial Accountability Regime to the industry next year mean insurers have to prepare in advance to make the smooth transition.

“Regulation remains a major concern for Australian insurers … this is to be expected, given the raft of new regulations which continue to lift the bar – particularly with regards to board oversight, accountability and risk management – with the ultimate objective of ensuring positive customer outcomes,” PwC says.

“It’s likely these regulatory changes will require substantial investment so ensuring long term benefits to the business are derived is important, as well as using these as a competitive advantage rather than seeing the new requirements as an onerous compliance exercise.” 

Click here for the report.