Australian insurers are increasingly stressed, driven by concerns over cyber threats, climate change and challenges from new regulations.

Consultancy PwC’s Banana Skins Index, a biennial gauge of the international insurance industry’s risk concerns, has an overall “anxiety level” of 3.41 points for Australia, up from 3.4 two years ago and higher than the 3.21 points recorded globally.

“Anxiety levels in Australia’s insurance industry are above the global average, suggesting the local industry feels less prepared to handle risks,” PwC said today.

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.

“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,” PwC Australia Insurance Leader Antonie Jagga 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 than their global counterparts with more diversified portfolios.”

The anxiety and preparedness scores are based on a global survey conducted last year. Australian respondents include 14 general insurers, four reinsurers, one broking intermediary and three life insurers.

PwC says a complex array of risks has been brought into focus by the survey. Cyber is ranked as the top risk, followed by regulation, climate change, reputation and human talent. Technology is next, followed by macroeconomy, cost reduction, political risk and change management.

The consultancy says much has happened since the last survey in 2021 and insurers are feeling the pinch. It says 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.

Compounding the industry’s anxiety levels are concerns over insurance affordability due to the large premium rises required to keep up with inflation, PwC says. At the same time, climate-related events have increased in prevalence, affecting claims frequency and severity.

“And the speed of policy payments is under the spotlight as vulnerability and financial hardship issues escalate. In short, Australia’s insurers face a raft of competing priorities.”

Factors such as maintaining growth and profitability, stiffer regulation and the challenge of attracting new customers leave insurers a “notoriously hard” balancing act, PwC says.

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