Claims delays continue to dominate insurance complaints. The Australian Financial Complaints Authority (AFCA) reported a record 105,000 complaints last financial year, including about 30,000 from insurance customers.
Brokers often find themselves having to explain claims issues to their customers. One industry publication that could help with this conversation came out last week. Finity Consulting’s Optima 2024 report is that firm’s flagship, annual state of the insurance industry publication.
“For brokers, there's a lot of rich information about claims drivers and their impact on premiums by class of business,” said Finity’s Pravesh Ponna (pictured above). “So that, in itself, could be helpful in understanding the trends that insurers are seeing and then that would obviously help support brokers’ conversations with clients when it comes to premium quotes and renewals.”
Ponna is a principal at the firm and an insurance market specialist. He was a lead author of the report.
He said a key claims driving pressure is inflation across the economy.
“Over the last few years the inflationary pressures on materials and labour have contributed to rising costs for motor and property classes,” said Ponna.
According to AFCA, in FY23-24 complaints about comprehensive motor vehicle insurance rose by more than 20%, surpassing home building cover as the most complained-about insurance product. Delays in claim processing were a significant portion of these complaints.
“So clearly the pressures are there for insurers, the costs are rising so the premiums are increasing in response – for brokers that’s a pressure point, because they need to be able to articulate that to their clients,” said Ponna.
The Finity expert said part of that explanation to clients needs to be around the profitability for insurers of the coverages they are selling.
“Understanding the profitability of their insurance offerings will help a broker understand where rates might be heading or help articulate to their clients why they might be expecting changes in their premiums going forward,” said Ponna.
The Optima report found that commercial motor premiums “surged by 15% in FY24.” The authors said this growth was driven by an 8% increase in premiums and 7% growth in insured vehicles.
“For FY25, we expect premium rate increases to moderate,” said the report.
For commercial property, another broker-dominated business sector, the report charted “continued rate increases in FY24.” However, the increases were more moderate than last year.
The positive news for brokers’ customers could be that strong insurer profitability in this sector and a softening reinsurance market “has attracted additional capacity and growth appetite, putting further downward pressure on rates in FY25.”
The Optima report also offered insights into wider issues impacting the claims environment. It found that non-residential building construction prices and householders’ trends suggested that in FY24 corporate property was impacted by “an underlying inflation rate remaining in the high single digits.”
The report warned that multiple years of big property premium increases have “worsened the existing risk of underinsurance and non-disclosure.”
The report is generally optimistic about the coming year for the industry.
The reported net loss ratio is expected to be similar to last year.
“Whilst dollar expenses will continue to increase, expense ratios are forecast to reduce slightly given strong premium growth,” said the release.
Investment returns are forecast to be more than 5% for FY25, slightly down on the previous year. However, despite the expectation of a strong FY25, Finity attached caveats.
“Finity calls out the range of potential headwinds facing the industry, with natural perils volatility and the impacts of climate change, ongoing claims inflation, economic uncertainty, and a softening commercial lines market,” said the release.
According to AFCA figures, customer complaints about brokers are low. Out of more than 100,000 complaints the regulator received from consumers last financial year, only 584 concerned insurance brokers.
However, the regulator’s CEO David Locke warned brokers against complacency and said there are still challenges to deal with.
Locke said the low number of complaints could mean that “clients are unaware they can complain about a broker in addition to an insurer.”
The CEO also said there are common themes in the complaints received concerning insurers and brokers.
“The most complained about issue for brokers is also the most complained about issue for general insurers and that is about delays in claim handling,” said Locke.
He said 15% of all complaints about brokers concern the length of time it takes for a client just to get a response to a claim submission.
“This is not good enough,” said Locke.
What do you find interesting and useful in the Optima report? Please tell us below.
