Staying ahead of the curve: Core areas of focus for insurers over the coming year
Staying ahead of the curve: Core areas of focus for insurers over the coming year
Over the next year, the Australian insurance industry is likely to face several evolving challenges and opportunities. Insurers must stay agile and innovative to remain competitive, and to effectively navigate a landscape filled with regulatory demands and risks.
In this article, Ali Bolbol, Tax Partner, Fiona Narielwalla, Audit & Assurance Partner, and Elissa Bogardus, Advisory Partner, outline the top five most important things for insurers in Australia to consider when it comes to facing these ever-changing challenges.
Climate risk and natural disasters
With the increasing frequency and severity of natural disasters such as bushfires, floods and cyclones, insurers need to assess and price climate-related risks accurately. It’s a complex task, and with more and more ‘unprecedented’ weather related events being reported across the country, it’s clear that the risk and impact of weather-related disasters is becoming increasingly unpredictable.
Insurers should consider updating risk models and reviewing these regularly with updated data, and use these models to reconsider their coverage options.
With the introduction of the Australian Accounting Standards Board’s (AASB) S2 Climate-related Disclosures, certain organisations will be required to report information about climate-related risks and opportunities to the market.
However, insurers should focus beyond just being compliant, and look at climate change adaptation, resilient infrastructure, better risk modelling, and innovative insurance products designed for disaster-prone areas to ensure they remain as prepared for an uncertain future as possible.
Regulatory compliance and reforms
It’s no secret that the regulatory landscape in Australia is continuously evolving. Policies with strong emphasis on consumer protection and financial stability ensure that insurers comply with stricter regulations, including those around claims handling, governance, and sustainability disclosures. Some of the key considerations are noted below:
- The current economic climate, competitive pressures and impacts of climate related incidents are impacting insurers who need to meet the capital adequacy and solvency requirements set by APRA
- As with all APRA-Regulated entities, insurers are focussing on ensuring the regulatory requirements of CPS 230 are met, which includes updating core elements of their Operational Risk Management Framework. Additionally, there is also a focus from the Australian Securities and Investments Commission (ASIC), in relation to conduct issues ensuring transparency, fair pricing, and adhering to the Insurance Contracts Act
- In addition, AASB S2 requires certain entities to include a sustainability report in the annual report. While larger entities have already implemented, or will soon be implementing, smaller entities will be subject to the new regulations over the coming years. You can read more in our roadmap to find out which entities need to report, and the phases and timing of reporting
- It is also worth noting that while insurers have implemented AASB 17 Insurance contracts, there are some implementation lessons and further refinements needed in underlying systems and reporting.
Technology and digital transformation
The rise of InsurTech and advancements in Artificial Intelligence (AI), machine learning, and data analytics are transforming the insurance sector. Many insurers have legacy systems resulting in technical debt and it is now a must to invest in digital and technology transformation.
Insurers now have the technology to understand their customers better than ever before and can provide faster and more personalised service. In the same vein, customers increasingly expect customised information at their fingertips, and expect efficient customer service from their insurer, whether they are looking for a quote, to amend their policy, or to make a claim. The power of AI can be leveraged to enhance the customer experience.
Insurers should continue to invest in digital platforms which can help enable more personalised policies, automated claims processing, and better customer service. Insurers could consider leveraging AI for claims automation, improving underwriting accuracy, and enhancing customer experience through chatbots and mobile apps to create efficiencies, and to exceed customer expectations.
Cybersecurity and data privacy
With increased use of data and technology, comes greater organisational risk.
As insurers collect and process large amounts of sensitive data, they become prime targets for cyberattacks, so ensuring robust cyber security and business continuity measures to protect client data and essential operations is crucial for companies to protect their customers.
Insurers must strengthen cyber security protocols, complying with privacy regulations like the Australian Privacy Principles (APPs), and offering cyber insurance products to protect businesses and individuals. Cyber security affects all functions across insurance companies, and whilst it’s up to leaders to set the tone and policies for an organisation, adequate staff training must be rolled out entity-wide to ensure protection from cyber incidents. APRA is deeply involved in supervising cyber resilience and insurers have responsibilities to meet the requirements of CPS 234 Information Security.
Changing consumer expectations and behavioural shifts
Whilst technology growth is changing customer expectations, Australian consumers are also becoming more value-conscious, tech-savvy, and selective about insurance products as the cost-of-living crisis continues, along with strong competition across the sector. This has paved the way for customers to demand more flexible and transparent policies.
Insurers wanting to remain competitive into the future are shifting towards usage-based and on-demand insurance policies which allow customers to choose when and how they want to be insured across different times and aspects of their lives. Insurers should also consider improving transparency around policy terms, simplifying the claims process, and providing value-added services such as wellness programs or digital tools that can integrate with customer’s lives.
Creating and maintaining organisational resilience
Predicting the next natural disaster, regulatory reform or cyber-attack is impossible, but knowing how to withstand their impact is a formula that is well understood. Organisations merely comply with regulatory and legal requirements will not effectively withstand the unpredictable. However, history has shown us that organisations who embed resilience into how they do business, will withstand the unknown and remain competitive to a far greater extent than those who merely operate to achieve compliance.
How BDO can help
In an industry characterised by constant change, BDO is a trusted partner for insurance companies navigating market disruptions like insurtech and technology modernisation, extreme weather events, regulatory challenges, and evolving customer expectations.
Our expertise spans across general insurance, health and life insurance, reinsurance, and insurance brokers, and our team of experts can provide you with tailored solutions that drive growth, enhance compliance, and improve operational efficiency.
Whether you are a global insurer, a domestic player, or a niche provider, BDO can help you thrive in an ever-changing insurance landscape. Contact us today to find out how we can help your organisation thrive in 2025 and beyond.