Insurers should seek to limit pricing cycle volatility and look beyond significant premium increases and withdrawal of cover in responding to market issues, Australian Prudential Regulation Authority (APRA) Deputy Chairman Helen Rowell says.

“Some variation in profitability is to be expected over time, but not the extreme cycles we have seen in some product classes that seem to continually repeat,” she told the Insurance Council of Australia (ICA) Annual Industry Forum.

“There is a need for a different, more innovative approach by insurers to how they design and distribute products, manage claims, and communicate with consumers to help lessen such volatility in the pricing cycle and improve accessibility and affordability for policyholders.”

Ms Rowell, who welcomed ICA’s affordability and availability review, says the insurance sector is in the box-seat to see problems emerging and should be able to respond proactively and at an earlier stage.

Insurers should look to better structure and design products to match cover to consumer expectations and requirements, she said, while noting balances between tailored products and issues of complexity and comparability.

“There are some real tensions and trade-offs that are going to be quite challenging to work through,” she said.

Ms Rowell told the forum that there can also be no repeat of the business interruption (BI) policy wording issues that have arisen during the COVID-19 pandemic.

APRA in July wrote to the 10 most exposed general insurers asking them to review risk management practices in light of the wording issues, and to also identify potential silent cyber exposures.

“BI has been both a setback and a wake-up call for the insurance sector,” Ms Rowell said.

APRA in March and April asked 10 general insurers to pilot a risk culture survey, which contained questions such as “Do people feel safe to speak up?” and “Do their leaders model good risk management behaviours?”.

The regulator said last week it planned to roll out the survey to up to 60 banking, insurance and superannuation entities over the next 12 months, with insurance scheduled for the first quarter.