Insurers get to grips with change
The insurance industry is under greater parliamentary scrutiny and political game playing than at any time in history, according to Rob Whelan, chief executive of the Insurance Council of Australia.
In the keynote speech at RFi Group’s Australian Insurance Summit, the ICA head warned that a Royal Commission into the financial sector is on the cards if there is a change of government at the next Federal Election.
“Undoubtedly, insurance will be swept up in it for several years,” he told the Sydney audience.
“And if you think the regulators are standing by, passively monitoring us, then you’re very much mistaken.
“I’ve never seen regulators so active and assertive – they’re putting the financial services sector under much greater scrutiny than ever before, and with it comes a level of activism.”
Moreover, he added, the industry faced the empowered and distrustful consumer, who has expectations of immediacy and is prepared to highlight through social and traditional media any short comings of their suppliers.
“We see this in heightened expectations on claims acceptance and on responsiveness to claims.”
The ICA head also spoke about low interest rates and stagnant investment returns which are hurting insurers’ capacity to generate non-premium income.
And, challenger brands and potential insurtechs are having an impact on bigger players through establishing a different business model – more nimble, lower cost base and fewer legacy issues.
“All of this is disruption.”
Nevertheless, Whelan argued, insurance will continue to play a crucial role in providing cost-effective high-value risk transfer to the community and the economy.
“But the community perception is that we cannot be trusted to do all this.”
New consumer demands
Product expectations have changed and continue to change, he told his audience.
Consequently, Whelan said the industry has responded by providing broader, more inclusive risk cover.
“A decade ago only 3 per cent of household insurance policies had flood cover. Now about 96 per cent of policies purchased include flood, and it’s available for all households and small businesses.
“The industry is now having its voice heard on climate change and on mitigating the impact of extreme weather with flow on effects on premiums.”
On top of that, he added, insurers are working on how to eliminate blanket exclusions on mental health and how best to grapple with the vexed areas of risk in cyber-crime, terrorism, and autonomous vehicles.
Whelan pointed out that it is "inarguable" that the industry is the essential mechanism for transfer of risk that enables the economy and society to operate smoothly.
Further, that the local industry has been able to achieve many things that our overseas colleagues find hard to imagine.
“We have been able to defend risk-based pricing in the face of threats of market interference and potential intervention.”
“Though progress is slow, governments are finally listening to the evidence on the need for investing in nation-building mitigation and community resilience projects.”
From where he stands, the industry is coming to grips with conduct and reputational risk in a variety of ways.
For example, he pointed out, the industry has a much better understanding of the damaging impact on industry reputation of outmoded products, poor decisions, and perceptions of poor customer outcomes.
Better community engagement and communication to promote the vital service the industry provides is crucial to building community trust,’ he said.
Whelan listed the ICA’s Understand Insurance initiative, to spearhead community engagement, the Code of Practice, and efforts to come up with a new disclosure regime, as critical in this regard.
“There is a desire to move away from the traditional view of disclosure as merely the provision of information to more innovative ways of anticipating consumer needs and the provision of more tailored information.”
Principles of effective disclosure drafted by the ICA will also be incorporated in the revised Code of Practice.
“These are but a few of the initiatives this industry is undertaking to meet the challenges of our disrupted economy.”