While the last financial year was “improved”, the Australian general insurance industry continues to face major challenges, actuarial consultancy Taylor Fry says.

Its latest Radar report, which analyses the sector class-by-class, highlights wide-ranging impacts, “from the ongoing positive effects in motor, to the risk of increasing mental health claims in workers’ compensation and the significant insurer obligations towards improving customer outcomes across all lines”.

“Add to this the shockwaves of the IPCC climate report, cybersecurity concerns for directors and officers, and the urgency of affordability – as householder premiums continue to rise yet the class remains unprofitable – and it’s clear the challenges are complex,” Taylor Fry Principal Win-Li Toh said.

“Rising to them will require depth, insight and agile thinking.”

The industry’s overall net profit after tax increased 17.6% on the previous financial year, but it continues to be significantly affected by COVID-19.

Taylor Fry says increased business interruption provisions, brought on by an adverse ruling in the first test case, “continue to be high on insurers minds, especially with the second test case to be decided this month”.

Ongoing border closures and lockdowns continue to have positive effects in motor, experiencing fewer collision claims, but negative effects for travel insurance.

“Looking forward, these COVID-19 impacts may reduce as vaccination take-up rates improve and lockdown restrictions are eased,” Ms Toh says.

The pandemic has also seen mental health “take centre stage”.

“Workers are at increased risk of psychological claims, with the additional pressure created by changes in work demands, restrictions on movement and working from home,” Ms Toh said.

“Primary mental injuries have increased in some publicly underwritten states, with potential to be a future cost pressure also for privately underwritten states.”

Taylor Fry also flags insurance affordability as a “major concern” in the light of several large natural catastrophes, but says it’s not yet clear how the Federal Government’s cyclone reinsurance pool will operate.

Radar snapshot:

Domestic motor: FY21 was one of the most profitable years on record, with an average combined ratio of 85%.

Householder: This class is a major challenge for insurers. Year-on-year premium rate increases, including a 6% increase in FY21, have not been enough to restore profitability. The FY21 combined ratio was 103%, up from 101% in FY20.

Commercial property: Average premium rates have flattened over FY21 following four years of consistent increases. Profit trends remain poor, mainly due to catastrophic event claims and COVID-19-related business interruption claim provisions.

Professional indemnity: This class has been profitable, albeit volatile, in recent years, benefitting from premium increases and prior period reserve releases. Insurers remain concerned by poor results in D&O (particularly Side C covers), PI covers for building professionals and medical malpractice.

Click here to read the full report.