EY: What commercial insurers can learn from personal lines

He said commercial insurers are acknowledging the change required and encouraged by strong results.

“We see Australian general insurers transition to investment in modernisation of commercial lines, similarly to their global peers,” said the multinational professional services company’s insurance expert.

“Structurally attractive” but rate increases expected

Even though there are serious challenges ahead, Poetscher expects the insurance industry to perform well in many lines of business during 2023.

“Despite volatility in recent times, we believe the Australian insurance industry is structurally attractive and recent trends to be cyclical or transitional,” he said.

Poetscher said the resurgence of underwriting margins from strong rate increases “bodes well” for the industry over the next few years. However, he said claims inflation will adversely impact margins “for some time.”

Read more: Australian insurers under pressure to counter claims inflation

Poetscher said further rate increases are to be expected in home insurance after higher catastrophe losses and post-event inflation. The motor insurance market, he said, will likely revert to pre-COVID-19 levels as average claims sizes increase.

EY’s insurance expert suggested that the industry’s investment in technology is starting to pay off.

“In recent years, there’s been significant investment into technology, modernization and transformation, particularly in personal lines, revamping the customer experience, the use of data and the simplification of the business,” he said.

Poetscher pointed to insurance companies offering state-of-the-art cyber security operations and further innovating cyber insurance offerings, “accelerated by recent cyber breaches in the market.”

In 2023 organisational agility “is critical”

However, he suggested that personal lines offerings in Australia are ahead of commercial insurance in terms of technology adoption and meeting customer needs.

“Agility of the organisation as a whole and specifically the systems environment is critical,” he said.

Poetscher said this requires core systems and digital front ends to work together seamlessly.

“We’ll see companies more and more looking for ways to create a frictionless business and bridge their legacy technology with new, advanced systems and partnerships,” he said.

In an earlier interview with the Australian Financial Review (AFR), EY’s insurance lead also expressed optimism about the life insurance sector. The AFR report said this sector has experienced a 50% fall in sales since the Hayne Royal Commission.

“The longer-term outlook is more positive, with industry consolidation expected to drive scale efficiencies and allow life insurers to modernise technology and digital front-end systems and put them on a more sustainable long-term footing,” Poetscher told the AFR.

Natural disasters: a new normal

According to the Australian Financial Complaints Authority (AFCA), one of this year’s major challenges for the insurance industry is adapting to dealing with ongoing and increasingly severe natural disasters as the “new normal.”

“Catastrophes should no longer be catching insurers by surprise,” Prue Monument, general manager of Code Compliance and Monitoring for AFCA’s General Insurance Code Governance Committee (GICGC). “If this is the new normal, insurers need to adjust accordingly.”

Read more: AFCA on insurers’ 2023 compliance challenges

In 2023, she suggested, insurance companies can’t use disasters as excuses for poor service and other compliance failures. Monument said insurers have always been in the business of responding to catastrophes and that must be an ongoing focus.

Monument detailed other challenges in 2023 including the tail end of COVID-19, the tight labour market and the geopolitical instability creating supply chain issues.

“All of those things are such a challenge but ASIC [Australian Securities and Investments Commission] and also the Code Committee, is really urging insurers to be proactive and think about how they need to position themselves to deal with this,” she said.

Monument said “the big issue” over the next year from a compliance perspective is – as in previous years – around timeliness and communication.

“We know that insurers are struggling to meet their timeframes but what’s happening is poor communication is just exacerbating things and consumers are understandably complaining,” she said.

Monument said this can be an opportunity for insurers to “get on the front foot.”

“Engage regularly with consumers, keep them up to date on how things are progressing and manage the expectations of the consumers about when they’re likely to receive an outcome or what the next steps are going to be,” she said.