The COVID-19 pandemic will likely cause “adverse effects” in most insurance lines due to unprecedented disruption and uncertainty, Taylor Fry warned today.

The actuarial consultancy’s annual Radar report reveals a mixed outlook as insurers grapple with five major themes – pandemics, restoring consumer trust, a warming climate, mental health and cybersecurity.

The report looks at each class of business in turn, assessing combined ratios and total premium volumes.

“In Radar, we discuss the impact of COVID-19 on insurers, which is significant, although experience varies by class of business,” Taylor Fry Principal Kevin Gomes says.

“Travel insurance has been hit particularly hard but, in time, most lines of business are likely to experience adverse effects, as poor economic conditions and increasing community hardship constrain premium increases and apply ongoing pressures on claims.”

Mr Gomes says that while COVID-19 has been the focus for most insurers over the past six months, it has not reduced the impact of longer-term risks, such as climate change, “with its ongoing and far-reaching implications”.

“Catastrophic weather-related events cost insurers more than $5.2 billion over the year, including property damage claims from the unprecedented summer bushfires, January hailstorms and February storms,” he says.

In mental health, Radar highlights an increase in primary and secondary psychological workers’ compensation claims as a major concern for the industry. The rise is likely to stem from changes to work demands, shifts in working arrangements, and COVID-19-related restrictions.

Return-to-work rates may also deteriorate due to difficulties with injured workers finding suitable duties in industries affected by the pandemic.

Radar contributor and Taylor Fry Principal Win-Li Toh identifies cybersecurity as a valuable and growing class.

“Recent media attention has brought cybersecurity into sharp relief as essential to most business models,” she says.

“The emphasis is on boards showing ‘visible accountability’ of their risk to investors, combined with a clear chain of responsibility and communication beyond government regulation.”

Ms Toh adds cybersecurity is especially important as many of us continue to work from home.

“A particular issue is the potential in several classes of business for ‘silent cyber’, where an insurer may have to pay claims for cyber-related losses under a traditional insurance policy not designed for the purpose. Insurers still have a lot of work to do in fully understanding cyber risks and pricing accordingly.”

Mr Gomes says despite “the generally bleak tone”, there are some encouraging signs for the industry.

“In the aftermath of the Hayne Royal Commission, regulation of insurer conduct and disclosure obligations continue to strengthen, which is heralding a cultural shift in the way insurers deal with their customers.

“Putting people at the centre of everything we do is simply the right thing – there’s never been a better time.”

Click here for the full report.