Affordability and availability pressures and increasing regulatory scrutiny are two key issues for the insurance industry, the annual Radar report from actuarial consultancy Taylor Fry says. 

In the Householders class, a 13% increase in average premiums last fiscal year wasn’t enough to cover the rising cost of claims, with the industry recording a combined operating ratio of 102%, according to the report which draws on Australian Prudential Regulation Authority data and the consultancy’s analysis. 

IAG has flagged it expects to increase rates by up to a further 20% in an effort to restore profitability and the Radar report expects other insurers to follow suit.  

Taylor Fry Principal Win-Li Toh says the rising premiums are increasing the risk of non-insurance and underinsurance, particular for more vulnerable consumers. 

“Those are the people that you actually need to look at,” she tells insuranceNEWS.com.au. “Insurance is not meant for the elite.” 

The report highlights that rising premiums could also increase churn in domestic motor, where changes in claims mix and inflation are affecting insurers. 

Insurers face rising scrutiny as a result of the introduction of the Financial Accountability Regime (FAR) and the federal parliamentary inquiry into insurers’ responses to flooding events, where affordability issues are expected to be central. 

Under the FAR legislation, all directors and some senior executives in financial industries will be personally accountable for a range of new and expanded prudential and conduct-related compliance requirements. 

Ms Toh says the scrutiny is an opportunity for insurers to take ownership of issues and to drive improvements. 

“The leadership vision in our industry has never been more important,” she says. 

“It’s time to grab the opportunity to implement change, and lead some of the difficult conversations that need to be had.” 

Overall industry profit rose to $4.6 billion last year, the highest in almost a decade, while return on capital was 14.2%. Profits for direct insurers and reinsurers were bolstered by a turnaround in the contribution from investments, which Taylor Fry points out could be volatile in the year ahead. 

The report also highlights the increasing focus on cyber issues and the risks of attack, and says 2023 is “the year artificial intelligence went mainstream” as organisations look to adopt the technology to streamline operations, improve efficiency and reduce costs. 

“While the benefits of AI are certainly being felt, maintaining the ‘human touch’ will be vital to ensure positive outcomes for consumers and insurers,” Ms Toh says. 

See ANALYSIS.