During a webinar presentation, Andrew Hall (pictured above) used financial figures to throw the challenges facing the insurance industry into stark relief.
“Last year we saw that out of $62 billion collected in gross earned premium, the total net profit for the whole sector, across all of our general insurers in Australia, was $2.2 billion,” said the CEO of the Insurance Council of Australia (ICA).
Hall used that surprising difference between money collected and actual profits for a further surprising comparison.
“I often have to remind people that $2.2 billion is less than Qantas made in profit last year and I’m talking about all of Australia’s general insurers,” said Hall during a webinar hosted by the Financial Services Accountants Association (FSAA).
However, financial figures helped the ICA CEO characterise the challenges ahead and also demonstrate a positive side of the industry: general insurance companies, he suggested, are much more than businesses focused on profit.
“It’s been a fascinating period of time, that’s for sure, over the last 12 months or so, for our sector,” said Hall.
With sensitivity to an audience likely dominated by accountants, Hall came up with more figures.
During the 12 months of last year, he said, the industry paid out $36.5 billion in house and motor claims, or $147 million every working day.
“It really, I think, underscores the fact that insurance as a product exists to make claims and at the moment we are running very much at full throttle on paying claims,” he said.
Last year’s record round of flooding, said Hall, underscored the need for resilience and risk reduction to be a key objective for the whole country.
“It’s really fundamental to the work we’re doing when we’re talking about affordability, availability and the sustainability of our sector,” he said. “I think our job needs to be to keep reminding government and regulators and everyone else that the role of insurance is critically important in both the economy, but also in that protection role we play with climate.”
Hall said part of that conversation involves changing the traditional view of insurance as just a shield or a protection piece, to an enabler.
“It actually enables investment, it enables people to get on with their lives and so that enablement piece has been a big focus for us,” he said.
However, recent years have thrown serious challenges at the industry’s ability to fulfill this roll, including the cumulative effect of 13 declared catastrophes since 2019. Claims costs and operating expenses, particularly with the new regulations, he said are “big chunks” of cost.
On a presentation slide Hall showed claims costs versus premium amounts for 2022, broken down for each state.
“You can see in two of our largest states [NSW and Queensland] when it comes to premiums and claims,” he said, “we’ve expended more in claims than we’ve earned in premium - always not a good thing to do - obviously driven by the floods.”
Hall said this “significant pressure” is impacting Australia’s international profile with reinsurers.
“We are seeing reinsurance premiums and reinsurance costs go up significantly and that is having an ongoing impact because at the moment, really, it can only be recovered through premium increases,” said Hall
At the recent Insurance Australia Group (IAG) Investor Day, presentations by executives, including CEO Nick Hawkins, mentioned premiums increases.
“We have had a very challenging time,” said Hall. “That’s definitely not an attractive place at the moment to get a return on capital.”
Despite the challenges “we’re hopeful,” he said, that things will start to turn around.
Apart from structural and mindset changes, Hall suggested artificial intelligence (AI) could help.
One audience question during the webinar asked Hall what he sees as the “next big technology play” for general insurers?
“AI,” said the ICA’s CEO. “I know everyone says that now, but I’ve already seen overseas what AI is starting to deliver.”
Hall gave the example of a minor car accident where the owner can take photos of the accident, send them off and have a claim processed “within 20 minutes.”
“Processed to the point of being told where to take your car to be repaired,” he said. “They’ll even have done the quote, assessed the damage and worked out what was wrong and where it needs to be repaired.”
Hall said AI can also help with risk modelling and more accurate pricing.
“In London, in the Lloyd’s lab, I saw startups there that are using AI to take flood modelling and actually predict the behaviour of a flood in an urban area,” he said.
Hall said this can improve the flood accuracy of insurers by not just telling them that a block of land is underwater but also which parts of the block are underwater.
“There are all these real opportunities,” he said. “It’s going to be game changing - if we can get it right.”
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