Fickle customers, climate change and “the maelstrom that is technology” are creating extreme volatility in the Australian insurance market, law firm Sparke Helmore says.

The firm’s latest Risk Radar report says three issues stand out for creating significant headwinds in the local industry: Climate risk, technology, and a shortage of talented employees.

“You have the perfect storm,” the report says. “Insurers are under significant pressure with all these extreme events, taking hit after hit.”

The catastrophic 2020 bushfire season has left insurers with “their backs to the wall” and the law firm warns there is a “real danger” that markets will shrink and expose consumers and governments to additional financial burdens.

“Insurers are having to manage the intersection between policies, risk premiums and price to strike a balance between the viability of business and societal expectations,” the report says.

The revolution in technology is about personalisation, big data, analytics, artificial intelligence (AI), automation and blockchain, and Sparke Helmore says “customer-centricity” will continue to be the buzzword.

Deeper interrogation of customer behaviours will be the norm, bots will become more mainstream, AI will drive the claims function and advanced drone technology will play a huge part in assessment of affected areas afterpost a catastrophic event, it says.

Legislation and regulation are struggling to keep up with the pace of change, and cyber risk premiums are on the rise.

Boards and top executives must have “wide oversight of every current conceivable eventuality” and have strategies in place to mitigate and/or respond.

“It’s become so much more than an IT or a legal department problem,” Sparke Helmore says. “Insurers need to be one step ahead in what is a competitive and consolidating market.”

It says the war for talent in the insurance industry is hotter than ever, with a sizeable gap between qualified professionals and the demand for them.

This has not been helped by the royal commission into financial services. The law firm says insurance businesses now risk being perceived as competent but “coming up short on ethics”.

Demand will only increase” for experienced brokers and those with niche skills in risk, compliance and analytics, as well as experts in climate change.

“With the human touch now being a differentiator and the antithesis to what is fundamentally a technology-driven industry, attraction and retention of the right people with the right skills is only going to get harder for insurers,” the report says.

Insurers will need to invest in leading wellbeing programs to demonstrate a best practice commitment to their employees, says Sparke Helmore Partner Gillian Davidson.