Actuarial group Taylor Fry’s Radar report has examined climate, affordability, technology and regulation impacts on insurers while looking behind industry headline figures to identify positive and negative developments in each of the major classes.

The sector posted a healthy profit of $3.9 billion after tax for the nine months to June 30, supported by premium increases, catastrophe losses falling below expectations and investment returns, but the state of play differs across lines.

Householders cover profitability has improved but inflation battles continue, travel has rebounded from the pandemic turmoil, and technology changes and electric vehicles are becoming more of a challenge for motor insurers.

Below are some of the report’s observations in each of the major classes:

Householders: The inflation outlook for home insurance remains uncertain, with some insurers still reporting double-digit inflation for home policies. This may be exacerbated by government plans to build 1.2 million homes over five years, combined with a reduced skilled migrant intake. The class recorded an insurance services profit of $500 million in the June quarter after losses of $200 million in the March quarter and $700 million in the December quarter.

Compulsory third party: NSW gross earned insurer premium has increased over the previous three years to levels similar to 2019. Claims frequency reductions assumed over time by the State Insurance Regulatory Authority have been offset by increased average claim size. Quarterly actuarial monitoring indicates an upwards trend for frequency and average claim size, suggesting rates may come under pressure.

Workers’ compensation: Psychological injuries are a driver of rising claim numbers and longer durations, with claimants on average taking longer to return to work, while costs are higher. Taylor Fry research indicates people with pre-existing mental health vulnerabilities have a higher likelihood of lodging claims for workers’ compensation, whether for physical or psychological injury. On staffing, experienced claim managers are hard to find.

Domestic and commercial motor: Solid premium growth and a relatively benign period for natural disasters have led to strong profit margins, while claim cost pressures appear to be easing. Insurers have been able to pass on costs, with premium growth outpacing cost increases for most companies. Growing use of electric vehicles has exposed a lack of capacity in the skills and supply chains needed for repairs, leading to avoidably higher costs and delays.

Commercial property: Premium increases are tracking about 15% year on year in the latest data, in line with the high rate of increases in the past couple of years. Profitability remains strong, partly due to disciplined underwriting and increasing reinsurance capacity, but challenges such as fire risks, inflation and natural disasters continue to shape the outlook. As the reinsurance cycle turns, businesses may begin to see some relief in premium rates.

Travel: Monthly outbound travel volumes have returned to pre-pandemic levels, with gross written premium in the six months to March 31 40% higher than in the corresponding period ending March 2020. The claims environment has been benign and travel insurance benefited from a favourable reinsurance renewal season. Competition in the sector is increasing.

Cyber: More benign claims experience, tighter cyber controls spurred by increased awareness and regulatory scrutiny, and additional capacity have led to a softening market. The Australian Prudential Regulation Authority published statistics for cyber for the first time this year and gross written premium for the three quarters to June was $168 million. Taylor Fry expects the annual figure to be about $250 million.

Public liability: The net combined operating ratio for the nine months was 84%, but some sectors have seen rising premiums and more restrictive terms. The amusement, leisure and recreation industries are affected, as well as construction. The ability of foster care and youth homelessness services providers to secure cover remains affected by the continuing high level of sexual abuse liability claims.

Professional indemnity, and directors’ and officers’: Reserve releases from prior years underpinned the insurance service result, which rose to $507 million from $406 million. Class action filings over the six months to June 30 were below average, but experience to September suggests this was a temporary reprieve. The construction industry is under pressure, with insolvencies on the rise. Architects and engineers face greater scrutiny over building and fire safety defects.

Lenders’ mortgage insurance: LMI insurers have benefited from a favourable economic environment and strong property prices in recent years. Mortgage defaults have jumped following interest rate rises and borrowers switching to variable-rate loans once fixed arrangements expire, but this is yet to translate into a rise in LMI claims. The outlook will depend heavily on the unemployment rate and economic conditions.