Rising Premiums Are Still Not Showing Improved Profits

Recent events have sent shockwaves through the insurance industry, putting immense pressure on all its sectors. Between natural disasters, technological disruptions, and shifting consumer trends, insurance companies are facing tough times ahead.

According to KPMG’s Australian Insurance Partner Scott Guse “Despite the premium increases that insurers have pushed through for home and motor products over the past 12 months, they are still struggling to improve the profitability of these products,”

Guse said insurers underwrite about $24 billion of premium across their home and motor insurance offerings. However, the total profitability for both these classes, he said, is only around $100 million. Click here for their full article.

Why the Home Insurance Sector is not Making Money?

The home insurance sector, often seen as the cornerstone of the insurance industry, is currently struggling to maintain profitability. One major challenge that has hit the home insurance sector particularly hard is the recent surge in natural disasters such as bushfires, floods and hailstorms. The high volume of claims arising from these disasters is exerting financial stress on insurers.

Compounding this issue, the sector is grappling with a number of regulatory changes that have increased the complexity of operating in this space. The Haynes Royal Commission’s findings have led to heightened regulatory oversight, compliance requirements, and enforcement action, which all further strain insurers’ resources.

The increase in remote work due to the COVID-19 pandemic has also brought its own set of challenges. Cybersecurity risks and the pressure to digitally transform their offerings to meet customer expectations are posing further challenges for home insurers.

Why are Profits on Motor Vehicle Insurance Down?

Much like the home insurance sector, motor vehicle insurance companies are also grappling with a slew of challenges that have resulted in declining profits. One of the main issues is that the pandemic has brought about a change in consumer behavior with many seeing car insurance as a discretionary spend.

Additionally, the continued prevalence of class actions, harsher regulations, and a rise in securities class actions due to the Hayne Royal Commission have all had a major impact on profitability.

Lastly, the rise in technology has led to an increase in claims related to cybersecurity. As vehicles become increasingly connected, insurers are dealing with new risks, such as cyber threats that can compromise vehicle systems, leading to accidents and claims.

Why are Electric Vehicles (EV’s) More Prone to Accidents?

Despite the benefits of electric vehicles, they seem to be more prone to accidents. A key factor here is the quiet nature of electric engines. Pedestrians and other road users are often not aware of an approaching EV, which can lead to accidents. Furthermore, with technology becoming an integral part of these vehicles, cyber threats pose a significant risk. For instance, if a vehicle’s system is compromised, it can lead to malfunctions and subsequently, accidents.

In addition there further issues with EV’s.

The use of regenerative braking in EVs can create different driving patterns compared to traditional internal combustion engine (ICE) vehicles. Regenerative braking allows the EV to recover and store some of the energy that would normally be lost as heat during braking, and this recovered energy can then be used to power the vehicle, increasing its efficiency. However, this can lead to a different “feel” when braking, as regenerative braking is often less sudden than traditional friction-based braking.

One study discusses the use of a single-pedal control strategy for EVs. This involves using a single pedal to control both acceleration and deceleration, instead of the conventional two-pedal system (accelerator and brake) used in most vehicles. Research has found that this system could potentially increase positive emotions and decrease cognitive workload for the driver. However, only electroencephalography (EEG) results suggested a decrease in the cognitive workload with one-pedal operation; questionnaire results did not show a significant difference between the pedal conditions. This suggests that while some drivers may enjoy the single-pedal system, others may not find it significantly easier to use than a traditional two-pedal system.

So, while EVs and their unique acceleration and braking systems can provide efficiency benefits, they may require an adjustment period for drivers used to traditional vehicle control systems. Further research is needed to fully understand these effects and how they can be mitigated or leveraged to improve the driver experience in EVs.

The insurance industry, especially the home and motor vehicle sectors, are navigating through unprecedented challenges. The intersection of technology, consumer behavior, and regulatory changes are reshaping the industry, forcing insurers to adapt swiftly and innovatively to mitigate these emerging risks.

However, don’t be too discouraged. At RSM Tasmania we pride oursleves in finding the best value insurance coveerge, tailored to suit your business

ACKNOWLEDGEMENT: Insurance Business Mag – Daniel Wood

Talk to Roger Hosie from #RSMTasmania today.
Call Now! (03) 6244 7854, or email roger@rsmtasmania.com.au 

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