The industry has been urged to adopt a “proactive” mindset in the face of challenges that will shape its fortunes over the next five years and beyond.

Closing the trust gap is one such test, and with new rules on accountability and operational resilience due next year, the industry must show it is serious about regulators’ concerns, PwC says in a new report.

The Financial Accountability Regime starts on March 15 and the CPS 230 Operational Resilience regulation kicks in on July 1.

PwC says compliance is considered the most significant challenge for Australian businesses and the prudential and corporate regulators have intensified their oversight in recent years, particularly on pricing transparency and fairness.

“These measures are essential for consumer protection but may also be considered to impose operational strains on insurers,” the consultant’s report says.

“The industry is challenged with navigating complex compliance requirements while striving for technological advancements and innovative product offerings.

“To address these challenges, companies must shift from a reactive stance to a position of proactive collaboration with regulators.”

The report says that through continuous dialogue, the industry can help shape frameworks that protect customers while fostering innovation.

“A key aspect of the regulatory landscape for insurance companies in Australia is the high expectations set by the regulators when it comes to conduct and treating customers fairly ... Critically, insurers need to ensure that the products they sell are clearly understood and designed to meet the customers’ needs.”

Climate and its impact on premiums is another challenge for the industry, the report says.

The ability to model and price risk accurately is under strain as natural peril events become more frequent and severe.

“Estimates based on past events may not adequately represent future experience. With rising premiums and customer retention rates affected, insurers must develop innovative solutions and strategic adjustments in product offerings.

“Furthermore, customers are becoming more aware of the impacts of climate change and expect insurers to offer comprehensive coverage that addresses these new risks.”

PwC says insurers must prepare for increasing “uninsurability” by developing new products that address specific needs arising from climate change.

“This could involve creating policies that offer more flexible coverage options, integrating climate resilience measures and providing incentives for customers to adopt sustainable practices. By doing so, insurers can ensure that coverage remains available and reliable for their customers.”

See the report here.

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