The Australian Prudential Regulation Authority (APRA) warns general insurers face “significant risks” and says it will play a more prominent role in engaging on “challenging issues” in future.

APRA’s 2020 Year in Review, released today, says “imprecision” in policy wordings has led to the possibility of unanticipated COVID-19 business interruption claims, while the Black Summer resulted in $6 billion of catastrophe claims.

“With respect to these weather-related claims, the financial toll on general insurers was largely at the expense of earnings rather than capital,” APRA says.

“Still, significant risks may lie ahead from a combination of lower business volumes, increased claims activity and more expensive reinsurance.”

The regulator says the impact of COVID-19 on household and business incomes, particularly as Government support is unwound, “is likely to exacerbate concerns relating to the affordability and availability of insurance”.

“Against this backdrop, APRA is planning to increase its engagement with insurance consumer groups on these challenging issues,” the report says.

“During 2020, APRA established the Insurance Consumer Forum which will begin meeting twice yearly from 2021 to share ideas, insights and recommendations.”

APRA notes that the industry generated a 3.2% return on net assets in the year to June 2020, “which was significantly below the 10-year average of 12.4%”.

The lower return was due to weaker underwriting results as a result of the Black Summer but also “large falls in investment income”.

Click here to read the full report.