According to Ms. Karen Chester, deputy chair of ASIC, the insurance industry is currently in a "catch up" mode as a result of the rapidly changing operating environment, shifting expectations, and new, more stringent regulatory requirements.


She stated that legacy issues are a costly factor for the insurance industry in her remarks yesterday at the Insurance Council of Australia (ICA) Annual Conference. Inadequate control and information systems and complexity in products, promises, and business models are two historical challenges that directly affect insurers. Climate change, the third and most pressing concern, makes it even harder for the insurance business to play "catch up."


Ms. Chester spoke on three issues that concern insurers:


Pricing mistakes


For at least five years, some insurers have had pricing issues in the insurance industry. The failure to deliver on promised discounts to customers is the result of prior underinvestment in systems and controls around pricing.


More than A$760 million ($488 million) in refunds have been made as a result of price failure remediations, which cover an estimated 5 million insurance policies. According to Ms. Chester, this does not include the ongoing costs of the remediations or the price of the repair.


She stated: "The bottom line is that insurers' procedures and controls have not been reliable enough to determine and guarantee that pricing promises were kept. The price you pledged to charge your customer must be honored."


Here, two reasons led to system and control failures. Product (and promise) complexity that is unneeded, as well as systems that are out of pace with industry consolidation.


In the first half of 2023, ASIC will report on the pricing failures review to the public.


2. Extreme weather phenomena


Less cyclically and more serially, extreme weather events are occurring more frequently. Australians have endured three years of back-to-back bushfires, floods, cyclones, and the COVID-19 pandemic, which will result in more than 197,000 claims by the end of 2021.


Ms. Chester highlighted that the industry responded as it normally does in times of crisis and managed to function rather well under pressure. However, the circumstance has highlighted pressure spots that require attention.


There is a delay in claims. There are still unresolved claims from 2021. 12 months after the October 2021 storms, 13% (14,000) of the claims are still unresolved; 16 months after the June 2021 storms in Victoria, 6% (2,000) of the claims are still unresolved; and 19 months after Cyclone Seroja in Western Australia, 11% of the claims are still unresolved. Additionally, many CAT claims are now extending past 12 months.


Notably and significantly, this applies to both BAU claims and extreme weather event claims, indicating that backlogs are starting to affect a wider range of consumers.


Added Ms. Chester: "Here, resourcing must go beyond a constant state of catch-up in order to improve consumer results. Perhaps it's time to pause and reconsider how resources are allocated for handling claims and resolving disputes. Is a structural lift in that resourcing necessary, as opposed to surge capacity driven by events or seasons?"


Additionally needed are advancements in both product design and communication. The definitions of words like "flood," "storm," and "runoff" will need to be examined by insurers, who will also need to think about how to explain insurance provisions to clients.


3. Data requires


According to Ms. Chester, a 360-degree perspective of companies' performance in terms of customer outcomes will eventually be possible thanks to the integration of fine-grained insurance policy and claims data with Reportable Situations, internal, and external dispute resolution data. The ability to design effective plans and focused measures to make sure insurance products are satisfying customer demands is made possible by increased data granularity, which is crucial for regulators, the government, industry, and consumers.


The next step


She stated: "We can see that the market is catching up. We are aware that now is not the best moment to do so. But we all understand how to move forward: with data, a focus on consumer outcomes, incorporating DDO, allocating enough resources to handle claims, and cooperating through the ICA and with us, the regulators."