New decade, new challenges

New decade, new challenges

We surveyed 12 industry leaders for their assessments of the future for insurance in Australia. The result: many hurdles ahead, but also opportunities

By Bernice Han

More than a year has passed since Commissioner Kenneth Hayne handed his final report to the Federal Government, but anxiety over the impact of his proposals on the industry continues to run deep.

An Insurance News 2020 Vision survey has secured detailed responses from a dozen of the most prominent and influential general insurance chief executives in Australia.

Respondents were asked to rank key challenges and opportunities, and identify the five most significant changes set to impact the industry, as well as explaining what keeps them awake at night.

Regulatory reform and compliance topped the list as the most pressing challenge, with nearly 92% of respondents naming it as the biggest hurdle their businesses must work to overcome this year.

Climate change and extreme weather events placed a distant second, with just one respondent listing it as the most worrying issue on his agenda.

The prevailing low interest rates environment, competition, staff retention and recruitment, and the state of the global economy were less of a concern, according to the survey. Not a single chief executive viewed any of the four potential business risks as their number one or second challenge.

That insurance leaders continue to be overwhelmingly consumed with whether their businesses are ready for a Haynescripted regulatory regime should come as no surprise.

In the months after receiving the royal commission’s report, the office of Federal Treasurer Josh Frydenberg has been running at a dizzying pace to adopt all 76 of Commissioner Hayne’s proposals to reform the financial services sector, including insurance.

The political pressure was ignited the moment the royal commission heard directly from consumers who recounted their experiences of being on the receiving end of unjust, deceptive financial practices.

Very few of the travesties that came to light had anything to do with general insurance. Nevertheless, a number of the royal commission’s suggestions, once implemented, will discard long-established rules that have governed the way the industry operates.

Insurance contracts, for instance, will have to comply with unfair contract terms laws after Federal Parliament recently passed the Financial Sector Reform Bill 2019.

Claims-handling is another area facing a significant overhaul. It will become a financial service overseen by the Australian Securities and Investments Commission from July, with draft legislation already tabled by Treasury.

Suncorp Insurance Chief Executive – and Insurance Council of Australia President – Gary Dransfield sums up what the industry could be in for as the regulatory reforms kick in.

“The post-Hayne world is seeking to define what ‘fairness’ for customers looks like in an insurance context, but runs the risk of tilting the scales towards excessive benefits for some individual claimants at the cost of more expensive insurance for everyone,” Mr Dransfield says in his survey response.

“The view of what is fair held in certain regulatory and quasi-regulatory domains may be at odds with what the bulk of the insurance-buying public think is fair to all policyholders.”

So vexing is the regulatory challenge that a number of respondents believe it will continue to shape the industry in the next five years. A few even admit the matter is giving them sleepless nights.

“The role of technology and people and the interplay between them will be instrumental.”

Significantly, eight out of the 12 respondents listed increased government involvement in insurance markets as a significant agent of change over the next five years.

“The interaction between the different regulatory changes has not been well thought through,” Hollard Insurance Chief Executive Richard Enthoven says.

He is one of the respondents who admits to constantly thinking about the challenge of “carefully managing the affordability and availability of insurance given all the regulatory and technical changes the industry is experiencing”.

The same goes for Simon Lightbody, the Chief Executive of Steadfast Underwriting Agencies.

Allianz Australia Managing Director Richard Feledy says the wellbeing of his staff who are dealing with the regulatory changes is one of several issues causing him concern.

PSC Insurance Group’s Chief Executive, Rohan Stewart, also sees no let-up in the regulatory pressure on the industry in the next five years.

“Overall governance and compliance framework will continue to tighten around doing the right thing by the client in everything we do,” he predicts.

As a result, he says, “ensuring the culture of the business and what makes us different permeates throughout all levels of the organisations” as the business grows at home and abroad.

For IAG Chief Executive Australia Mark Milliner, ensuring the insurer is exceeding customer expectations each and every day is his major concern.

He lists regulatory reform and compliance as the leading challenge this year, and believes the industry needs to find a way to manage it alongside other existing tasks.

He says that “balancing the triple challenge of business transformation, unprecedented levels of regulatory scrutiny and responding to recent large-scale events” is something the industry needs to address.

Insurance House Group Managing Director Jay Fereday highlights positioning his business to stay attuned to customer needs.

“Clients have always had the ability to choose who they want to deal with, but how they buy has historically been reasonably limited,” he says.

“This will continue to change and so will expectations on the ability to be able to self-serve, research and buy anytime, anywhere.”

But it is not entirely gloomy for the industry, despite concerns over how the regulatory reforms will play out eventually.

Despite the pressure of regulatory change, the survey findings reveal insurance leaders do see opportunities to strengthen their businesses.

About 42% ranked regaining consumer trust as the leading opportunity, and 33% of the respondents, including QBE Australia Pacific Chief Executive Vivek Bhatia, believe using technology to increase efficiency offers the best prospect.

“The role of technology and people and the interplay between them will be instrumental,” Mr Bhatia says.

“Our focus is on product simplification with a design centred around customer needs, ensuring it’s delivering value for them and combined with an ease of transacting with us during sales, service and claims.”

Bobby Lehane, Chief Executive of strata insurer CHU, also agrees the biggest opportunity will come from using technology to lift productivity.

“Artificial intelligence and technologies will continue to transform our business as they have been doing gradually over the past 5-10 years. The rate of that change will continue to accelerate and those who get it right will prosper.”

Willis Towers Watson Australia Chief Executive Simon Weaver says moving into new specialist markets will offer the biggest opportunity for his company. It’s an assessment shared by Kurt Nilsen, the Chairman of the Underwriting Agencies Council and Managing Director of Lion Underwriting.

While the Hayne reforms offer the greatest challenge, they may also bring huge opportunities as companies rethink the way they deal with their customers. But only time will tell how clear our 2020 vision proves to be.

Survey results at a glance

Insurance News surveyed 12 leading members of the Australian insurance industry in January. Following is their collated responses.

The biggest challenges for the industry:

1. Regulatory reform and compliance

2. Climate change and extreme weather events

3. Staff retention and recruitment

4. Competition

5. Global economic environment

6. Low interest rates

The biggest opportunities for companies:

1. Increased efficiencies through technology

2. Regaining consumer trust

3. Increased profitability

4. Mergers and acquisitions

5. Moving into specialist new markets

6. Overseas expansion

The most significant upcoming changes:

1. Increased use of artificial intelligence

2. Increased government involvement in insurance markets

3. Increasing levels of risk-rated premiums

4. Brokers more important

5. Simpler policies

6. Reinsurers withdrawing support or imposing tougher conditions