APRA deputy chair Helen Rowell on current insurance challenges

Focusing on the first theme, Rowell emphasised Australia’s vulnerability to climate risks, with the east coast weather events earlier this year draining insurers’ funds. The industry has already paid out over half of the $5.4 billion claims filed. Moreover, as climate change results in more frequent and extreme weather events, insurance is becoming unaffordable and unavailable in areas most exposed to natural disasters.

“This is an area where APRA continues to focus, given our role under the Insurance Act is to protect the interests of policyholders in ways that are consistent with the continued development of a viable, competitive, and innovative insurance industry. And insurance being too expensive or simply not on offer is a poor outcome for consumers, the insurance industry, and the wider economy,” Rowell said.

APRA and the Australian Securities and Investments Commission (ASIC) are engaging with the ICA, the Treasury, and other stakeholders to develop a deeper understanding of the scale and scope of insurance affordability and availability issues and possible solutions.

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On strengthening insurance risk management practices, Rowell noted that many insurers have been seeking ways to manage their insurance risk exposures, leading to poor customer outcomes. As a result, APRA has focused on the fundamental issue of insurance risk management in the past 12 months, having asked 10 insurers to review what went wrong regarding business interruption (BI) insurance and remedy their insurance risk management frameworks to avoid repeating the problem.

“It is important that insurers heed the lessons from this review. APRA will be closely monitoring to ensure insurers make the improvements they have committed to, and is prepared to, adopt stronger measures if we don’t observe good progress,” Rowell said. “I also urge those who did not participate in the exercise to consider conducting a similar review across their own products and portfolios. With the added lessons from the attention to pricing frameworks outlined earlier by ASIC, it is important that we see a significant and enduring uplift in risk management across the industry.”

Rowell also brought up the need for investing in innovation and different approaches to ensure insurance products and operating and business models are fit for the future.

“Tackling insurance affordability and availability, delivering the needed uplift in insurance risk management practices, and supporting operational resilience requires investment in simplification across products, systems, and processes. It also needs new and different approaches to those that may have been adopted in the past rather than continuing to do the same thing and expecting a different outcome. While we have seen some green shoots of innovation, and investment in improved systems, and processes, more is needed,” she said.

Rowell’s full speech to the ICA 2022 Annual Conference is available on the APRA website.