Is the insurance industry no longer a digital dinosaur?

Colleagues having a discussing wearing masks

MELBOURNE – 6 NOVEMBER 2021 – During the last few days, Australia passed significant COVID-19 milestones with implications for the insurance industry. The vaccination rate moved beyond 80%. Fully vaccinated Australians and permanent residents are allowed to travel to and from Australia. NSW and Victoria opened their borders to the fully vaccinated.

Australia is steadily moving towards normalising life with the virus. However, much has changed during the last 18 months, especially for the insurance sector – and not just because of COVID.

“We have experienced such a perfect storm of claim-worthy events, happening one after another with little break between,” said Nigel Fellowes-Freeman CEO of the insurtech Kanopi Cover.

Bushfires, hailstorms, business collapses, mass protests, and even an earthquake are some of the events that have impacted the industry on top of the pandemic.

“The sector amassed over $13 billion in debt as a result. Moreover, this is all happening during a period of disruption and innovation in insurance, one that promises to see the sector emerge both more resilient and tech-savvy,” said Fellowes-Freeman.

The Kanopi founder said a key factor underpinning the insurance sector’s ability to weather COVID-19 and other events is the shift in claims made during the pandemic.

“Motoring claims are a good example of this. According to APRA, the ultimate loss ratio – which measures gross premium cost and gross claim payouts – for both commercial and domestic car products fell below their 10-year average in 2020.”
Meanwhile, he said, household-related claims hit a new high, reaching an estimated 30 percentage points above their 10-year average ultimate loss ratio in 2020.

“This makes sense given everyone spent significantly more time at home in 2020 than any other year,” said Fellowes-Freeman. 

As Australia opens up the insurance industry is bracing for further hits from the pandemic. Fellowes-Freeman said insurers have put aside $1.5 billion for morbidity claims tied to COVID-19 lockdowns because fewer Australians have visited doctors for screenings and fears are also growing about mental health deterioration.

“There’s also expectations of liability claims relating to organisations and government bodies not doing enough to mitigate future outbreaks of COVID-19. Finally, we’re also expecting an increase in slips, falls and other liability claims as people return to retailers and other public places post COVID-19 restrictions,” he said.

Australia’s big insurers had a mixed year. Suncorp and Allianz reported profits while QBE and IAG suffered losses. IAG even went so far as to cut executive bonuses.

“Regardless, work on innovating continues at all four companies,” said Fellowes-Freeman.

The boss of the data driven insurtech expects the way in which consumers and businesses interact and choose insurance products to shift in the near future.

“We expect consumers to be more conservative as we leave the pandemic in the past. As a result, they will put more consideration into long-term insurance products such as health, life and mortgage insurance,” he said.

Fellowes-Freeman also said products that take into consideration the usage of the asset, for example, car insurance that factors in kilometres travelled, are likely to increase in popularity.

Some parts of the insurance industry will also have to do work to restore consumer confidence.

“Travel insurance is a good example, as stories abounded in 2020 regarding under-insurered travellers stranded overseas. Same goes for certain loss-related insurance for businesses affected by the pandemic,” he said.

Fellowes-Freeman said technology and innovation will be fundamental in restoring this trust.

“Open insurance, and other data-driven innovations will transform the sector from a set-and-forget product into a service that engages with the consumer and dynamically varies its premium depending on the need of the customer.”

The COVID-19 pandemic has also accelerated consumers’ expectations for tech-enabled self-service products, he said.

“Nobody wants to be stuck on the phone to an insurance company or fill out endless forms and provide repeated information to an insurer to make a claim. There are innovations in the pipeline to remedy this. With the help of disruptors I predict consumers will be seeing them within the next few years.”

The Kanopi boss said the industry’s drive to continue to innovate despite adversity is perhaps what he finds the most “remarkable” about the Australian insurance sector.

“Insurance has undergone one of its more challenging periods in recent history. Other industries have slammed the breaks in response and have focused on consolidation over innovation. The exact opposite has been happening in insurance.”