Radar report: insurers show 'admirable resilience', but challenges remain

Taylor Fry’s annual class-by-class assessment of the general insurance industry has been released, with all classes except for householders posting a profit.

The Radar report draws on Australian Prudential Regulation Authority (APRA) data to show that insurers saw profits after tax increase to $985 million in FY22, from $552 million in FY21.

Meanwhile, reinsurers bore the brunt of the worst climate-related claims, sustaining losses of $62 million in FY22, following profits of $369 million in FY21.

“I think that the industry has been pretty resilient, and there’s a lot of opportunities as well,” Taylor Fry Principal Win-Li Toh told insuranceNEWS.com.au.

“Even travel, which was dramatically impacted during the pandemic, showed some green shoots of recovery.”

However, she also warns that some classes only made a profit due to prior year releases and that industry return on capital, at 3.1%, is well below target levels.

“Beneath this generally positive picture, the industry is facing several challenges,” Ms Toh said.

These include balancing the need for insurer profitability against customer affordability issues, inflationary pressures and the likelihood of ongoing natural peril losses.

“The lingering effects of Covid-19 and consequences of war in Ukraine, such as labour shortages and supply-chain disruption, are leading to rising interest rates and higher inflation,” she said.

Added complications include the cyber threat and adapting insurance to offer appropriate protection.

“This highlights the complexity of developing insurance products in a fast-evolving landscape.

“No one is immune from the fallout of these issues. They impact insurers, government and the community.”

While reinsurers have taken most of the pain of recent catastrophe events, Taylor Fry warns that higher reinsurance prices will result.

“With a third La Nina event now underway in the Pacific … there seems little relief ahead,” Ms Toh said.

“La Nina typically brings elevated flood levels, which means potential for natural peril losses that will put pressure on reinsurance premiums.”

Click here to read the Radar report.