Climate change and profitability are among the key challenges for insurers this year and beyond, according to actuaries Taylor Fry.

Other issues to feature in the company’s annual Radar: Insights for Insurance Leaders report are driverless cars, Big Data and analytics.

“Generally, insurers are aware of the challenges,” Principal Kevin Gomes told insuranceNEWS.com.au. “In commercial [lines], they know profitability needs to be improved.”

He says the premium rates nightmare for commercial lines looks set to continue. Last year rates declined by an average of 6%.

“On commercial lines, the news doesn’t look… good,” Mr Gomes said. “Commercial lines have had decreases [last year] and further decreases are expected [this year].”

The picture is somewhat better in personal lines, with “moderate increases” expected this year.

The report says climate change is a long-term challenge that will affect the sector in “diverse, complex and uncertain” ways – not all of them bad.

In fact, opportunities abound for insurers that can meet the challenge.

“Transitioning to a low-carbon economy also offers insurers substantial new opportunities, such as the use of weather derivatives to manage the variability in revenue from renewable energy sources due to variability in output,” the report says.

“As always, insurers that are agile enough to quickly respond to the changing market with products that meet the needs of their customers are likely to thrive in the new reality of an unstable climate.”

The industry must get used to technology’s growing impact, the report says.

“Technology continues to transform the risks insurers face. Technology also provides opportunities for those that innovate and engage with customers. Insurers need to be agile if they are to remain relevant in this disruptive and dynamic environment.”

Driverless cars, when they become mainstream, will be a “disruptive force” for motor insurers.

“Future-focused insurers will be considering the opportunities and threats that driverless cars present to their current business. At the very least, they are expected to affect the frequency of insurance claims and therefore the premiums charged.”