Modest premium increases in key personal lines and a long-awaited turn to growth in commercial classes should propel the insurance industry into a year of improved profitability, according to consultant Taylor Fry.

“The outlook on the whole is more positive for Australian and New Zealand insurers than in recent years,” it says in this year’s Radar report. “This should ease some pressure for insurers, creating space to assess the impact of changes in the broader economic landscape and regulatory environment, as well as disruptive technological advances.”

The outlook for personal lines suggests lower claims inflation than in last financial year, while commercial lines may have to grapple with ongoing claims pressures.

Compulsory third party classes in Queensland and NSW are “in for a turbulent year of regulatory change, with a particularly uncertain outlook”, the report says.

Taylor Fry anticipates an influx of capital into the development of cyber product and capabilities, and an increase in insured losses. Large businesses currently make up the majority of cyber policyholders, with 70% of claims costs split between investigation and business interruption, while legal and notification expenses mostly make up the remainder.

“As smaller businesses look to cover themselves, insurers must grapple with the need to ensure profitability when investigation costs are likely to make up an even greater proportion of the claims profile,” Taylor Fry says.

One solution may be the development of an “all perils” product that adds cyber-related risks into a commercial package.

Big Data also presents a double-edged sword, offering insights to improve service offerings while increasing the challenge of managing personal information responsibly and avoiding privacy breaches.

In New Zealand, overall results for insurers were solid last year, but reinsurance costs may increase due to November’s Kaikoura earthquake.

“If this materialises, there will be pressure on insurance affordability, particularly in regions with higher [exposure] to seismic events,” the report says.