RADAR 2021

In another head-spinning but generally improved year, the issues are big and nuanced – with COVID-19, new customer regulations and climate change the biggest of all. The impacts are mixed and wide ranging, from ongoing positive effects in motor, to the risk of increasing mental health claims in workers compensation and the significant insurer obligations towards improving customer outcomes across all lines.

Add to this the shockwaves of the IPCC climate report, cybersecurity concerns for directors and officers, and the urgency of affordability – as householder premiums continue to rise yet the class remains unprofitable – and it’s clear the challenges are complex. Rising to them will require depth, insight and agile thinking. In our class-by-class analysis, we carefully unpick the issues to make sense of the way forward …

Overall profitability

General insurers rebounded from a disappointing FY2020, with an overall net profit after tax up by 17.6% in FY2021, with premium increases particularly evident in householders, domestic motor and professional indemnity. Reductions in gross claims were achieved despite significant increases in provisioning for COVID-19-related business interruption (BI) claims and the high cost of natural catastrophe claims in FY2021.

Impacts of COVID-19

Insurers continue to be significantly but variously impacted by COVID-19, with BI provisions an area of focus. Insurers eagerly await a decision on the second BI test case in September 2021, after increased BI provisions saw a spike in commercial property claims in Q420, following the first COVID-19 BI test case.

Ongoing border closures and restrictions on movement continue to have positive effects in motor, experiencing fewer collision claims, but negative effects for travel insurance. Looking forward, COVID-19 impacts may reduce as vaccination take-up rates improve and lockdowns are eased.

Affordability impacted by catastrophe events

Several large natural catastrophe events impacted property insurers during FY2021, most notably the  Halloween hailstorm in central Qld ($940m industry loss), floods in the Hunter Valley and mid north coast ($650m industry loss), and tropical Cyclone Seroja ($273m industry loss).

In an effort to address affordability, a reinsurance pool will commence in July 2022, covering cyclone and flood-related damage in Northern Australia, backed by a $10 billion government guarantee.

Climate change

The potential for climate change to increase the cost of natural disasters remains a key concern. The latest assessment report from the Intergovernmental Panel on Climate Change (IPCC), released in August 2021, found that climate change and its impacts on extreme weather events were accelerating.

In recognition of escalating climate change risks, the government allocated $600m in funding for a National Recovery and Resilience Agency to develop initiatives that reduce the risk and lessen the impact of catastrophic weather events on communities.

Mental health

Workers are at increased risk of psychological claims, with the additional pressure created by changes in work demands, restrictions on movement and working from home. Primary mental injuries have increased in some publicly underwritten states, with potential to be a future cost pressure also for privately underwritten states.

Consumer regulations

FY21 was an important year for insurers implementing new consumer regulations, especially in addressing conduct and disclosure obligations. D&O in particular is a changing landscape, as company officers come to grips with complex, fast-changing risks, such as cybersecurity, as well as the pandemic and climate change. On the flipside, while class actions have adversely impacted D&O claims over several years, recent continuous disclosure and litigation funding reforms may help stem the growth in class actions in future.

Download RADAR for more expert insights on the shifts and trends in the industry to help you navigate the uncertainty and discover opportunity in our evolving insurance landscape.