There is no doubt next year could bring significant change, and insuranceNEWS.com.au asked industry leaders to emphasise their top five concerns for the year to come.

AUB Group CEO Mark Searles

A renewed focus on doing the right thing

This isn’t an ‘issue’ so much as a fundamental licence to operate, but – like many others – we’ve been following the Royal Commission closely and speculating as to what will come out of it. One thing is very clear, and that’s the need for the whole industry to remember its primary obligation: to serve clients. That’s certainly what we do as brokers – acting explicitly in the interests of our clients, and doing the right thing by them. We expect the industry as a whole to face increased scrutiny, and we really welcome that. 

The hardening market

We’re now in a hardening market. It’s important to remember that younger people might not have experienced this stage of the insurance cycle, so might not understand why prices are rising. Education is central to this, to ensure providers and customers alike understand cyclical changes and are in a position to make informed decisions.  

Insurtech

As a founding partner of Insurtech Australia, we strongly believe new technology offers enormous opportunity to better serve clients and facilitate business / client interaction. We’re very active in this space – recently, our team have been gathering expertise from offshore. While our clear strategic focus means we never want to be a tech company, we certainly want to be a great tech enabler.

Customer relevance

Society, technology and client needs are all changing quickly, which means insurance providers and brokers must actively work to maintain their relevance to customers, and better anticipate their needs. A key element in this is the ability to offer a more holistic solution, by being – first and foremost – a trusted risk adviser.

Cybercrime and data protection

Cybercrime as an issue will only continue to grow as technology – and data in particular – becomes ever more embedded and entangled in our professional and personal lives. Insurance is ultimately risk management, so as a sector we need to be at the forefront of addressing this high-risk issue. 

Berkshire Hathaway Specialty Insurance Australasia President Mark Lingafelter

Regulatory environment

The changing regulatory environment will remain an important point of focus for our industry. Firstly, insurers will prepare their own organisations to meet the new regulatory standards and community expectations that emerge following the Royal Commission into Financial Services. Also, for carriers that provide Director and Officers and other specialty liability coverages to Financial Services customer, changes to the regulatory environment and changing enforcement behaviours would create a potential increase in the exposure to loss.  Carriers will need to thoughtfully review customers’ exposure to loss under the new regulatory environment and evolve their approach to risk control and risk underwriting.          

Maintain a strong technical foundation

The dislocation underway across several product lines in the Australian and London Markets in 2018 serve as a reminder of the importance of building a strong technical approach to underwriting, pricing and risk management. BHSI will continue to focus on getting better in these areas. Our priorities would range from ongoing underwriting training, to improving our technical and pricing models, to reinforcing the importance of effective collaboration between our Underwriting and Actuarial teams to correctly price at the risk and portfolio level. Our risk engineers are also working with our clients to better identify and control the underlying exposure to loss within their business. 

Customer focus     

For BHSI, it is particularly important as our business scales up that we continue to put the customer first and be prepared to go the extra mile. This was a great feature of BHSI’ when the business was initially started, and in a crowded market with too much supply it was a necessity. After almost four years, BHSI has been fortunate to grow and scale, and is seeing an increased flow of opportunities and a growing number of customers. However, it is more important than ever that we maintain our “day one” commitment to the customer. While current market conditions provide opportunities, we realise that we need to show up with the same humility, and commitment to outstanding service and claims expertise in order to sustain our customers and brokers support over the long run. We are working hard to develop an offering where brokers and customers “want” to do business with BHSI, right through the different market cycles.      

Navigating the changing digital landscape. 

Whether navigating the rise of Fintech or finding better ways to service and support our customers and brokers, the ongoing transition to digital is driving change and creating new opportunities. 

Manage natural catastrophe Risks

The last few years have provided frequent reminders of the growing impact of Natural Catastrophes, and the importance to our industry of improving our ability to underwrite and manage the perils of Flood, Earthquake, Windstorm and Bushfire. The tragic Flooding, Earthquake, Cyclone and Bushfire events across Australia, New Zealand and the Pacific just in the last ten years underscore the threat.  In the last few years, the Kaikoura Earthquake in 2016 and Cyclone Debbie in Australia have impacted our home market. This follows the devastation of Hurricanes Harvey, Irma, and Maria in the US in 2017, all followed by Hurricanes Florence and Michael in 2018.  As we write this note, the Camp Wildfire in California has already claimed 29 lives and destroyed over 6500 structures.

As an industry we can work to support stronger government investment in mitigation, while we work within our own companies to better leverage technology and CAT models to offer customers consistent and sustainable approaches to risk transfer in this area. 

Hollard CEO Richard Enthoven

Managing the scale of, and leveraging the opportunities afforded by, proposed regulatory change

 There are a number of proposed regulatory changes under consideration by various departments and regulatory agencies. Any one of these will have a material impact on the industry. Absorbing a large number of these at the same time will be extremely complex.  Such changes also enable us to continually refine process, and better respond to dialogue with our customers, so present inherent opportunities for the industry as well.

Keeping insurance affordable and available

Access to quality insurance is a public good. It is therefore extremely important that we manage the inherent trade-off between improving the protections for individual policyholders and keeping insurance affordable and available for the vast majority of insurance customers who are highly satisfied.

Attracting and retaining a diverse talent pool

To adequately meet the evolving challenges our industry faces and respond to its inherent opportunities, we need to attract and retain a diverse talent pool that reflects our customers and intimately understands their challenges and innovatively responds to their changing needs.  

Climate Change

Climate change is real, and all the credible science suggests the impacts on weather pattern is likely to be more extreme than previously thought.   The historical data on which we base our pricing will increasingly fail to usefully predict future losses.

The emergence of autonomous vehicles and responding appropriately to AI-related technologies and trends

Autonomous vehicles will represent the biggest change to the insurance industry in our lifetime. Close to 50% of insurance industry revenue comes from motor insurance and this is likely to look very different in a decade than it does today!  Getting smart on AI-related technologies and trends around automation, deep learning and external data ecosystems is also key. These will increasingly impact all facets of distribution, underwriting and pricing, and claims and we need to be thinking a step ahead.

IAG CEO Australia Mark Milliner

Maintaining customer and community trust

Maintaining and building customer and community trust will continue to be a priority for the whole financial services sector, including general insurance, over the next year and beyond. IAG believes the Royal Commission is an important opportunity for us to listen, learn and to ensure we continue to do the right thing by our customers and all the people who count on us. We’re always looking at ways we can improve outcomes for customers. This includes how our products are designed, explained and sold to customers, as well as their overall experience with us.

Better understand customers and their needs

A part of building customer and community trust is better understanding their needs and expectations. Providing world-leading customer experiences is one of IAG’s three strategic priories, and so better anticipating, understanding and meeting customers’ needs remains our absolute focus. To do this, we continue to build on our segmentation of work to deepen our understanding of customers’ needs and behaviours so that we can create valuable experiences. We’re also improving our digital channels because we know customers want to interact with us in different ways, whether that be webchat or over the phone, and we’re being smarter at using technology. In addition, we’re consulting more closely with our customers and communities, and we’ve done that through our Consumer Advisory Board and Ethics Committee. We’re using their advice and feedback to help us design relevant, fair value products and experiences.

Climate action

Insurers around the world understand the risks climate change poses and it’s important we do everything we can to help protect our customers and their communities. At IAG it’s a critical way in which we can fulfil our purpose – we make your world a safer place. In October this year we launched our expanded Climate Change Action Plan, which includes a scorecard to track our progress and assigns accountabilities to members of the leadership team. I’m excited about the opportunity to deliver on my accountabilities under our plan and ultimately, to be part of making a real difference for our customers and communities.

Natural disaster mitigation

Helping our customers and communities prepare for and reduce the economic and social impacts of natural disasters must continue to be a key focus for the industry. IAG is a founding member of the Australian Business Roundtable for Disaster Resilience & Safer Communities. Through the Roundtable we’ve outlined the importance of investing in mitigation to help protect our communities and reduce the financial and social impact of natural disasters. There’s been some great progress with the Commonwealth Government launching its National Resilience Taskforce and the Queensland Government’s Household Resilience Program. We’re proud of our long-standing partnerships with the Australian Red Cross and the State Emergency Services. During the past year, we worked with the Australian Red Cross to co-create and launch a Get Prepared app which helps people prepare their own emergency plans on their smartphones.

Meeting customer expectations around digital experiences

Customers continue to change the way they want to interact and transact with insurers. They are increasingly demanding real time access and response through digital channels, and mobile and data applications. There is also a growing expectation that services will be personalised to the customer to recognise their unique needs. These changes are mainly driven by the millennials, who are becoming a more influential customer group. As a result, there’s a greater need to invest in digital capability and that’s important for us and our customers.

Insurance Council of Australia  CEO Rob Whelan

Climate change and the role of the general insurance sector

The Inter-Governmental Panel on Climate Change asserts climate change is occurring, driven in part by anthropogenic activity. The frequency and severity of extreme weather events will continue to change, with uncertain magnitudes and localised impacts. Many Australian communities are already experiencing the impact of extreme weather, amplified by development in areas with significant exposures. Insured losses are most notable where growth in population and insured assets has not been accompanied by defensive infrastructure, risk-appropriate building codes and prudent land-use planning. Globally, many insurers are examining the role they can play in addressing the implications of climate change. Insurers already play a strong role in communicating, responding to and managing to the risks their customers face now, and some are examining their investments and their underwriting criteria for climate-change implications. Australian insurers are active in this space, and are engaged in various activities to highlight their concerns, and help governments and communities address current extreme weather risk and the implications of climate change. However, it’s fair to say some in the industry see tension between providing products for economically and socially important industries and the climate-change impact of those assets. This debate will become even more critical in the coming year.    

Self-regulation and compliance

The General Insurance Code of Practice has been an industry success story for more than two decades, constantly evolving to anticipate the needs of consumers. The Code is now undergoing an extensive review and redrafting to shift the industry towards areas not traditionally envisioned by Codes, including mental health, hardship, vulnerable customers and family violence. The Insurance Council of Australia intends that the new Code will be ready for implementation and ASIC approval in the first half of 2019.

 However, the Financial Services Royal Commission has been critical of industry Codes, highlighting a perceived gap between Code breaches and formal sanctions. The GI Code has traditionally focused on rectification of breaches, rather than penalties. The ICA believes the Royal Commission’s final report, due in February, is likely to focus on more formal sanctions to enforce compliance. The ICA remains committed to the role of self-regulation as a powerful tool to improve consumer outcomes above black-letter law and regulation.

The Royal Commission outcomes and the role of self-regulation will be the key theme of the ICA’s Annual Forum, which will be held at the Sydney Hilton on February 27, 2019.    

Insurance affordability

In November, the ICA conducted 11 community insurance forums in North Queensland, starting in Cairns and finishing in Bundaberg. These forums sought to explain the link between the region’s extreme weather, claims history, building costs and other issues, and the cost of insurance. Consumers were briefed on two government programs intended to help property owners identify resilience issues and rectify their properties in a manner that insurers could recognise through lower premiums. The consistently articulated concerns from customers were the high cost of insurance and narrowness of competition, and the perception they were being treated unfairly. Many remain unconvinced that they in fact do face higher risks, and are much more likely to lodge claims, than the rest of the nation.

Affordability is a sore subject in northern Australia, and in many other regions where exposure to extreme weather (whether cyclones, storms, floods or bushfires) results in higher risk assessments and higher premiums. It’s likely climate change will amplify this for future generations.

The insurance industry does not have a magic wand to resolve these issues. Instead, it has identified a range of steps that will reduce pressure on premiums. These range from reform of unfair state taxes and levies on insurance which add 9 to 45 per cent to the final price of household products, depending on the state) to industry-driven property resilience initiatives and advocacy for investments in mitigation, improvements to building codes and land-use planning. Though insurance remains available for all property owners, the risk is real that insurers will continue to reduce their risk appetite in some parts of Australia if their business is unsustainable. And that’s an outcome we would all like to avoid.

Economic uncertainty

Though Australia’s economy is relatively strong, global economic and political uncertainty are important factors in the general insurance industry’s appetite for risk. It informs insurers’ investment strategies, reinsurance arrangements and market growth plans. The impact of the trade wars between the United States and key Australian trading partners may have a significant effect on our economy and terms of trade. Great Britain’s Brexit debacle and how this affects Australia’s relationship with it and the EU are also unknown.   

Regulatory action

The general insurance industry is already one of the most regulated in Australia, through the Insurance Contracts Act, Corporations Act, consumer laws, the oversight of APRA, ASIC, the ACCC and various state and territory regulatory and enforcement bodies, and through self-regulation. The Financial Services Royal Commission has put regulatory activity under scrutiny, and regulatory focus on negotiated outcomes (due in part to resourcing issues) has been strongly criticised. It’s likely regulation in a post-Royal Commission environment will become more muscular, with a greater focus on formal sanctions and prosecutions. The Insurance Council of Australia is focused on sensible reforms where the evidence is available. It is committed to working with regulators to help ensure outcomes for consumers are balanced by the industry’s capacity to continue to offer risk-based pricing in a competitive market, including maintaining direct and indirect sales channels that are appropriately remunerated.       

 

National Insurance Brokers Association CEO Dallas Booth

Challenges in the market place, as insurers continue to adjust their risk appetites and seek to move to correct pricing in key product areas, especially Fire and ISR.  The market and pricing challenges in Northern Australia will continue, especially if there are serious weather events in the coming summer.

New legislation, especially the new Design and Distribution Obligations, where it is not at all clear how the legislation will work in relation to general insurance products.  This affects everyone, and insurers, brokers, ASIC and Treasury will need to sit down together and work out an implementation strategy as soon as the legislation passes the Parliament.

New regulatory approaches, as both ASIC and APRA review their approach to regulating financial services and financial advice in the light of the evidence to date at the Royal Commission, the comments in the Commission’s Interim Report, and the forthcoming final report in February next year.

Other developments and recommendations coming out of the Royal Commission, given the fact that both sides of politics have undertaken to implement the Commission’s recommendations.  For brokers, this will include discussion of what true professionalism looks like, and who is responsible for monitoring and enforcement of professional conduct across the industry.  The role of the Insurance Brokers Code of Practice and the oversight of professional standards by NIBA will be important topics in this discussion.

Ongoing developments in technology, artificial intelligence, implementation of the New Payments Platform by the Australian banks, the potential entry of blockchain, and ongoing developments in fintech and insurtech.  Developments in technology will continue, at a pace many will not be able to cope with.  Those who are alert, flexible and able to make quick changes in the market environment will do well, others are likely to struggle.

QBE Group CEO Pat Regan

Being responsive to changing customer needs

In a rapidly changing world, we must quickly respond to our customers current and emerging needs against the backdrop of increased regulatory scrutiny and heightened shareholder and community expectations. These are issues for the entire sector, in Australia and globally, and they are a significant focus for QBE as we seek to deliver a consistent level of outstanding service to our customers and partners.

Technology

Technology is playing an increasingly important role in how the general insurance industry operates. At QBE, we see enormous opportunity in technology solutions to deliver better customer service. Digitisation and machine learning help us make better business decisions for our customers and our shareholders and this will be become increasingly important in the future. Through our QBE Ventures arm, we will continue to look for targeted investment opportunities with start-ups that provide QBE with access to technically advanced and industry changing technology solutions.

Macro environment

Geopolitical uncertainty, political risk and market volatility have become enduring features of the global economy. I expect this will continue to present challenges and opportunities for the general insurance industry in 2019.

Climate change

As well as the physical risks and opportunities associated with climate change, there are a range of potential transition risks associated with the global shift towards a lower‑carbon economy. At QBE, we are implementing the TCFD recommendations which establish a strong and consistent framework for improving climate-related risk management and disclosure. In 2019 we will also continue to collaborate with the global insurance industry through the UNEP FI’s insurance industry TCFD pilot group.

People

As an industry we must do more on the inclusion and diversity front and we need to do a better job of communicating the opportunities a career in the insurance sector can offer, especially if we are to compete with other industries that are sometimes considered more ‘cutting-edge’. That includes attracting technology-related skills for which there is huge competition everywhere.

Steadfast CEO Robert Kelly

The implications of legislative changes to the general insurance industry

The Royal Commission into Misconduct into the Banking, Superannuation and Financial Services Industry, and ASICs recent proposal to ban commissions on all general insurance products has attracted significant media attention in 2018. In NIBAs response to ASIC it highlighted that, “there is no evidence of any significant or systemic misconduct … as it applies to general insurance brokers.” Insurance brokers have a long history with regulation and compliance, dating back to 1986 and further amended in 2003.  Therefore if a systemic issue doesn’t exist then arguably the existing regulatory, and self-regulatory regime provides appropriate protection to the insurance consumer when they deal with an insurance broker for advice and placement and ultimately the management of their insurance affairs. The legislation dictates in a clear and unequivocal way insurance brokers must act in the best interests of their clients, not in the best interests of themselves or the insurer. This is particularly important at claims time when the insurance broker becomes the client advocate.  Sometimes negotiating between the insurer, the loss assessor and the brokers client to achieve a satisfactory claims result. Looking at many other jurisdictions around the world you will see that a ban on commissions to insurance brokers hasn’t been required and the system of insurer paid commissions has not created conflicts. Such a ban would result in Australia being inconsistent with most equivalent jurisdictions.  Lloyds of London have operated for 330 years on a system where the syndicate pays commission to distribution.

Consumers lack of trust in the insurance industry at claims time

Many consumers are not familiar with the purpose of a Product Disclosure Statement, or in fact, the implications of the document and how it relates to their situation. A common misconception is that an insurance Product Disclosure Statement (PDS) is advice. This means at claims time consumers are often confused or feel mislead because they haven’t read the finer details in either the PDS, or their policy documentation. Consumers should be made aware of the specifics that apply to their particular circumstances and have the policy explained to them in a way that takes into account their business or personal circumstance, highlighting not only what is covered, but also what isn’t covered.

The industry’s inability to attract potential talent from school and university as a first-choice career path

Insurance should be thought of as the DNA of a business because it helps to protect a business and minimise its exposure to risk. It should hold the same weight in terms of a career path as that of finance, law and other professional services. In order to drive the industry forward we need to be attracting the best of the talent pool. Insurance is a great career path, one that supports Australian growth and prosperity.

The commoditisation of the retail insurance product

Car, home and travel insurance are being sold on a price-based value proposition, leading consumers to believe that these products are all the same. This is incorrect and devalues the insurance industry as a whole. The detail within the policy and importantly, the appropriateness of the specific product for the consumer should always be considered in front of the price, or at the very least in conjunction with price.

Lack of women in senior management positions within the insurance industry

Although the insurance industry has made significant progress to improve the gender imbalance in the workforce, more work still needs to be done to address equality at the highest levels in the industry. It’s important that the insurance industry doesn’t just pay lip service to the diversity debate. At Steadfast Group we’re focused on building a diverse workplace with over 59% of our employees being female, including 40% in management positions.  The difference this has made to our own organisation is huge. Not only are these women proving that they can have a successful career in the insurance industry, they are also able to juggle a career with raising a family, pursing further studies and other interests. Organisations also stand to gain valuable insights into consumers purchasing habits by employing senior managers with different life experiences and perspectives.

Suncorp CEO Insurance Gary Dransfield

Restoring trust

The major focus of the past 12 months has been the Royal Commission in the Banking, Insurance and Financial Services industry, which has shone a light on poor service and governance that has tarnished trust in insurance. If we want to rebuild community trust, I think as an industry we need to also talk about value. The insurance industry needs to be clear on the value we deliver for customers, how we are doing this, and what this means for the wider community.

Regulatory change

Currently there are several potential regulatory changes that will have a significant impact on how the general insurance industry currently operates. From unfair contract terms, product design and distribution obligations to removing the exemption on claims handling - there is little doubt there will be change, but what and when is the question.

The importance of mitigation

As we head into another disaster season we continue to face the challenge of helping communities in vulnerable regions. Climate change impacts will see this disaster risk increase for future generations which will in turn put upward pressure on the cost of insurance. We know mitigation activities are the best way for people to protect themselves, their loved ones and their homes against cyclones. This is an important issue for Suncorp, and we will continue to work with customers, Government and the industry to reduce the destruction and heartache caused by natural disasters.

Improving understanding of insurance

Our conduct and practices are being examined like never before, and customer, community and government expectations are changing. Insurance remains vital for people and communities to function effectively, yet despite this, people still struggle to understand how it works.  When a customer needs to lodge a claim, we want their expectations to be aligned with their cover. Ultimately, we need to ensure insurance is providing value, and that the community views insurance as a worthwhile protection that is there for them when they need it most.

General Insurance Code of Practice

Updating the Code of Practice remains a key challenge, and opportunity, for the industry. This is an important process that will provide clear guidance and standards for the industry moving forward.  Across Suncorp, we’ll be working to ensure we live up to the spirit, as well as the letter, of the new code.

Underwriting Agencies Council Chairman Lyndon Turner

Regulation

The question is how our regulators will move forward following the Royal Commission and how different business models, distribution and products and services will be shaped once direction is set.

Capacity, rate and hardening market

Following a period of pricing increases, tougher risk acceptance and capacity changes, buyers, intermediaries and carriers are looking hard at where attention should be focused, finding the correct balance of rate and terms, including certain classes and occupations that will either prove tougher to get returns on, or be the focus on opportunity once results hit expectations.

Talent attraction to the industry

A lot of work has been done however following the Royal  Commission we need to focus energy, collectively, how we are a vital part of the economy, and provide fantastic opportunities to quality people across the region. As many will attest, the pub test needs improving to ensure insurance is a path of choice professionally.

Client expectations

I feel expectations are changing quickly, there are multiple success metrics and buyers are coming in via many mediums currently, how will this continue? We see a trend in our business back to much more personal contact, in addition to established electronic mediums. And then of course expectations on support and service in a transaction and at claim time. Be it a commoditised or complex placement or loss, expectations are wide and varied, but relationships and understanding will continue to be core.

Technology

How will insurtech, blockchain and other vehicles of technology, including large tech companies change the way we distribute our products and services. Small and large entities in the market will be watching closely to maximise their opportunities, and whether diving in now, or a bit later, is the best strategic call.