Taylor Fry’s latest Radar report shows there are many nuances behind strong headline earnings in the industry, as signs of softening spread in some parts of the market.

Commercial property, public liability and professional indemnity are areas where softening is being closely watched. Insurers are still likely to put through household rate increases, although not at the double-digit pace of recent years, as inflation pressures ease. 

“The expectation, at least from our end, is that you will still see increases in premiums there,” Taylor Fry principal Scott Duncan told Insurance News.  

Recent below-expectation catastrophe losses cannot be “baked in” and allowances are rising in a longer-term view, he says.

Mr Duncan notes insurers are looking to artificial intelligence for efficiency gains, and the tech is also attracting regulatory interest, with the Australian Prudential Regulation Authority noting a focus on AI in its latest corporate plan. 

Below are more of the 2024-25 report’s observations on the Australian market. 

Domestic and commercial motor

Domestic motor posted a record $1.26 billion insurance service result, exceeding profit during covid when traffic volumes fell. Repair inflationary pressures have eased over the past year, but electric vehicles are increasing demand for more complex repairs. Consolidation is taking place in the motor clubs area. 

Householders

The insurance service result reached $1.16 billion, the strongest outcome for more than a decade, as natural perils experience was relatively mild and insurers benefited from pricing increases. Taylor Fry expects the pace of premium gains to ease as inflation moderates and the reinsurance market softens.  

Commercial property

A softening market, after four profitable years, is likely to continue, supporting more generous terms and lower deductibles. Cyber risk management is receiving increased attention, while the transition to renewable energy is presenting rising risks related to hail and solar panels and fires caused by lithium-ion batteries.

Professional indemnity, and directors’ and officers’

New capacity has entered, particularly from overseas, and a softening market is likely to continue. Some D&O court rulings “swung the pendulum a bit” towards insurers. There is heightened financial adviser scrutiny, limited competition in solicitor PI and a focus on artificial intelligence.

Public and product liability

Net combined operating ratios sat at 86% following three years of profitability, and the market is showing signs of softening. Claims farming bans offer relief, but there is a shift towards product liability and consumer legal actions and per- and poly-fluoroalkyl substances loom as a potential “next asbestos”.

Cyber

Premiums are falling and coverage expanding, mirroring global experience, where prices have eased over the past two to three years following sharp increases in response to ransomware. Cybercriminals are escalating attacks, targeting managed service providers to amplify damage, and regulators are ramping up a focus on company resilience.

Travel

Insurers have posted three straight years of profits post-covid, with year-on-year premium increases and a net combined operating ratio of 90% in the latest period. Disruption elements include geopolitical tensions, extreme weather and cyber-related incidents, while cost-of-living pressures are affecting destination and trip length choices. 

Lenders’ mortgage insurance

Gross written premium is falling because of bank waivers and the government guarantee scheme, and demand will further contract as the federal scheme is expanded. Risks written have declined 59% since fiscal 2020. Mortgage arrears have increased from the record lows seen a couple of years ago but are well contained.

Medical Indemnity

Artificial intelligence is assisting with patient notes while presenting risks, and its use in prompting and diagnosis is gaining momentum. Claims farming bans rolling out across states are positive for the sector. Non-civil and damages claims are increasing, while those arising from witnessing traumatic events remain elevated. 

Workers’ compensation

Claims costs are putting pressure on schemes amid increasing numbers of mental injury cases. Reforms are occurring as regulators respond to growing costs. AI offers efficiencies but uptake requires caution, with over-reliance on automation risking misclassifying claims and missing vulnerable workers who need human support. 

Compulsory third party

Claims frequency has topped pre-pandemic levels in some states and fatality numbers have risen 5% to a 15-year high. E-scooter injuries need to be monitored, particularly if riders are at fault and other road users are involved. Self-driving vehicles are being trialled, but fault and right-of-recovery issues are complex and untested in Australia. 

The full report is available here.