Rising interest rates and improving equity markets are boosting insurers’ investment returns in the short term, but they will continue to face difficulties financing debt or getting equity capital, according to CGU CEO Duncan West.

Speaking at the Australian Insurance Law Association’s (AILA) annual conference in Melbourne last week, Mr West said lower interest rates have affected technical reserves in the long-tail classes. “This will place upward pressure on prices,” he said.

While most insurance classes have escaped rises in claims costs during the global financial crisis, he says there have been “pronounced increases” in directors’ and officers’ insurance, professional indemnity, trade credit and builders’ warranty.

Within motor lines, he believes the rising Australian dollar will start to bring the cost of imported spare parts down, which will improve claims costs.

Mr West also says the face of insurance is changing due to consolidation and new market entrants, including retailer Coles and Australia Post.

“The market has become relatively concentrated, with the top three players now controlling close to 60% of the total market,” he said. “But it’s important to note that the high level of market concentration overall belies the degree of diversity within the industry.”

He believes the push to commoditisation, technological advances and outsourcing will also have their effect on the industry.

“While the economic slowdown suggests a likely increase in outsourcing as a means to managing down costs, this will be balanced with the potential social and political backlash,” he said.