Actuary Taylor Fry has released the annual Radar report with his ‘class by class’ insights for insurers.
Taylor Fry says that by leveraging data from the Australian Prudential Regulation Authority (APRA) combined with “deep industry knowledge and experience” it is able to “pick” each business area.
It’s mostly good news, despite the surge in natural catastrophe claims, as every line of business except households is making a profit.
But those gains are less substantial than the industry would like, and a number of challenges are looming.
We’ve picked out the most important results in some of the main classes.
FY22 was challenging as domestic motor insurers faced large claims from East Coast flooding and an inflationary environment.
But insurers delivered strong growth in gross written premiums (GWP) – up 8% to counteract this pressure (4% premium growth and 4% rise in risks written on average).
Competition continues to intensify as challenger brands emerge and incumbent insurers must continue to innovate in products and pricing.
While severe weather is expected to continue to have an impact, the entrenchment of work from home should also increase loss ratios.
Insurers face supply chain issues as vehicles and parts become more expensive.
Commercial Motor has remained profitable despite rising claims costs due to supply chain issues.
GWP increased by 12%, thanks in part to an 8% increase in average premium, but cost pressures are expected to continue with increased use of technology in vehicles and labor and production shortages affecting repair costs and waiting times for impact customers.
Taylor Fry says that more frequent and costly natural catastrophes “are threatening the continued viability of home insurance,” particularly in flood-prone regions.
Multiple floods and high repair costs made FY22 a losing year for insurers, despite a 6% increase in average premiums. Combined ratios remain above 100% for the third year in a row.
The report mentions the introduction of the federal government’s hurricane reinsurance pool but says it is “only part of the solution”.
Other areas to consider are: reducing insurance taxes, reducing existing properties, cross-subsidizing between low and high risk homes, and improving building standards and planning.
According to the report, keeping insurance available and affordable requires ongoing collaboration between all parties.
“Insurers are asking, can I continue to offer home contents insurance in the current form and if so, at what price?”
commercial real estate
Underwriting results have improved over the past 12 to 18 months, but concerns remain about the profitability of this class.
While the combined ratio has been below 100% for six quarters, reported net loss ratios benefited from the release of reserves and there were significant reinsurance recoveries from natural catastrophe events.
For an extended period of time, commercial real estate has generated negative insurance margins with an average combined ratio in excess of 100% over the last seven years.
Insurers reacted to high claims from natural hazards and the uncertainty about business interruption losses in connection with Covid-19 with premium increases by an average of 16%.
Travel insurance has returned to “sustainable profitability” despite a string of “teething troubles” ramping up post-Covid.
Many employees left the industry during the border closures, leading in particular to a shortage of claims managers that “creates a potential backlog” and puts additional pressure on the remaining employees.
Taylor Fry says long airport queues, canceled flights and lost bags increase the potential for complaints.
But the Covid impact on travel should ease as the pandemic becomes ‘endemic’ and real opportunity will open up for travel insurers who successfully weather the storm.
Professional indemnity and liability insurance
Premium growth is outpacing claims growth, leading to improved underwriting profits, which could increase insurers’ appetites.
However, Taylor Fry expects insurers to remain selective due to concerns about certain sectors.
And some of the government reforms that have reduced the number of class action lawsuits may be reversed.
Cyber remains an issue as attacks become more sophisticated and challenges with definitions mean silent cyber continues to be a problem.
Click here for the full radar report.