Traditionally, the insurance market has followed a cycle through soft and hard peaks (see below), where various factors impact the competitiveness of terms offered by insurers. Given the changing world we live in, it has been suggested that the normal market cycle may be changed forever.
Never before has it been more important to have a professional insurance and risk advisor by your side, assisting to navigate the obstacles that come with a difficult market. As new challenges are being experienced, the right partner can ensure you stay ahead of risks within your industry.
Some of the factors currently impacting the market include:
- Climate volatility with a higher frequency and severity of weather related events
- COVID-19 prior and post consequences (usage of motor vehicles, foot traffic in retail etc)
- Inflationary pressures (cost of living, demand for building materials and labour etc)
- Global supply chain challenges (China’s COVID-zero policy, fuel costs, semi-conductor shortages etc)
- Geopolitical tensions (Russia invading Ukraine, soaring energy costs etc)
- Global economic uncertainty (pandemics, unprecedented levels of debt etc)
- Rising cost of reinsurance due to global claims experience (US Hurricane Ian estimated at $112b)
- Increase in certain claims trends (class actions, abuse, employment related, cyber etc)
- Changing labour market and work place safety (rise in injury to contractor/labour hire claims)
- Shortage of skilled workers (ability to make underwriting decisions, claims handling delays)
- Pressure on underwriting performance due to low investment returns
- Tightening of underwriting guidelines to avoid areas of risk (silicosis, injury excesses etc)
- Insurer shareholder expectations
For a more detailed view of the challenges mentioned above, we recommend reading CGU’s Strive Report, which collates a broad range of information from trusted sources and seeks to provide a greater understanding of the impact the current environment is having on the insurance industry.
Today, natural disasters cost the Australian economy $38 billion per year on average. Representing approximately 2% of Australia’s gross domestic product (GDP) in 2020. Even under a low emissions scenario – whereby timely action will see emissions start to fall and reach zero by 2100 – this cost will rise at least $73 billion annually by 2060, or 4% of Australia’s GDP in 2020.
Australian business roundtable for disaster resilience & safer communities, 2021
Our report recognises that small businesses, the nation’s largest employer engaging more than 4.7 million people, are at the greatest economic risk when faced with natural disasters, with risk awareness, underinsurance, and a lack of mitigation activities critical factors. These are critical areas we need to address as a nation to support people, businesses and communities into the future.
Damien Gallagher, CGU executive general manager.
Class of Products
Various products exist within the insurance industry that are designed to protect against different exposures. Each product has performance considerations which can be heavily impacted by the environment of the day. A comprehensive annual review and future outlook is provided by Finity Consulting, an actuarial and strategic analytics firm to the insurance industry. Finity’s latest OptimaLite report, offers a detailed insight into the key risks faced by the major product classes, as evidenced by the extract below:
To read the overall industry outlook and a detailed summary of each product class CLICK HERE.
“On the surface, the industry’s performance appears to have rebounded a little in FY22. But underlying that, the results are not as good, and there continues to be challenges ahead.”
Claims History – Australia
Whilst we understand natural catastrophes to be a normal part of life, the frequency and severity of these eventis becoming less predictable. Recent climate volatility makes forecasting an extremely difficult task.
In the last 10 years alone, natural catastrophes in Australia have attracted over 1.8 million claims nationally, at an estimated cost of $29.7 billion across 100 catastrophe declared events. Below is a timeline showing our most recent significant events, including the cause, location and total losses to date: