The APAC Insurance industry has been radically disrupted in the past 5 years. In Australia in particular a number of significant trends and challenges have come together to create a difficult situation for carriers. Finding the best solutions, and positioning insurance carriers for future growth requires an understanding of the impacts of recent market consolidation, new technology, regulatory change and significant losses related to retail disability income insurance products.
What are the 5 biggest challenges facing the Australian insurance industry?
Challenge #1: Growing losses
According to insight from KPMG Australia, Australian insurance sector profitability has been deteriorating over the last few years. Retail disability income losses of more than a billion dollars in FY2020 have driven much of that decrease.
Not surprisingly this puts pressure on carrier budgets. It dampens everything from expansion to technology spending, to even being able to adapt to new regulations.
Challenge #2: Insurance market consolidation
These growing losses have also caused an increase in Australian insurance merger and acquisition activity in recent years. Many major Australian banks have divested their life insurance businesses which has significantly reshaped the market.
As a result, size of wallet has shrunk, and the bigger players are struggling. The key question for carriers becomes, “How do you find the solutions to break through? How do get a bigger share of the smaller market?”
Challenge #3: Regulatory change
On top of shrinking market size and expense pressures, several very significant regulation changes have been introduced. These include:
- APRA and ASIC regulations and recommendations around retail disability income products
- Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
- The Future of Financial Advice Reforms which have contributed to the shrinking of the advisor population
- Design and Distribution Obligations (DDO), obligations which overhaul product governance and data gathering to ensure products are targeted at the right people
Challenge #4: The scope and timing of the changes
Perhaps the biggest challenge for Australian insurers is that all of these changes are happening at the same time. October 2021 is a critical month for completing very fundamental changes that affect all aspects of an insurer’s organization. The scale of the required changes have forced carriers to focus on achieving compliance now, before they can look forward to new growth.
— Bartosz Piwcewicz, Partner and Head of Actuarial Transformation, Systems & Data, KPMG Australia
Challenge #5: Heightened customer expectations
While the regulatory changes pose a challenge for carriers, they should ultimately benefit all stakeholders—especially customers. And this has created a heightened set of expectations around how they should be treated by all stakeholders. Over the past couple of years, they have developed new, harder to meet expectations around the flow of information, privacy, and conduct.
How can carriers respond to these changes?
The customer is at the forefront of everything insurers do, and the decisions they make as a business. In a year like this, it’s critical to focus on customer retention. Asia Pacific insurance carriers have found themselves in a position where they need to find ways to build trust and deepen relationships through better client engagement.
Meeting and exceeding customers’ increased expectations now means giving them the digital tools and better user experience that they've been asking for. Insurance companies that are still reliant on outdated technologies and old solutions can't address today’s customers’ insurance needs easily.
Carriers need to embrace digital transformation
— Nadine Gooderick, General Manager, Transformation, ClearView
Beyond 2021, Australian insurers need a reset for the long term. After this year’s regulatory deadlines are met, what then? There is still a world of opportunities for carriers to take advantage of.
At the outset of Equisoft’s recent Driving Innovation in a New Age Accelerate Series webinar we asked the carrier attendees from the region to identify the biggest issue they were grappling with. What we saw was that the upheavals in the market over the past two years are having a big impact on carriers’ new business volumes and profitability.
As Bartosz Piwcewicz, Partner and Head of Actuarial Transformation, Systems & Data at KPMG Australia, explained, these answers are not surprising given the pressures on carriers right now.
As insurers move beyond 2021, those best positioned to grow will have defined a clear 3-year digital transformation strategy. They will have built plans to modernize their base IT landscape with the aim of accelerating innovation and enhancing customer engagement.
— Tanya Ho-Wai, Senior Director-Insurance Products, Oracle
Without plans for overcoming traditional reliance on outdated back office systems, ad hoc manual workflows and patches it will be hard to manage the complexity of the change occurring at many carriers, let alone build a fully competitive and sustainable future.
For more insights into how to construct your digital transformation roadmap and successfully modernize your IT landscape, watch the webcast of the Driving Innovation in a New Age webinar.