Howden identifies changes and trends in Australian insurance market

Howden Group (Howden) has published its Risk Market Outlook 2022, detailing changes and trends in the Australian insurance market, driven by the COVID-19 pandemic and regulatory changes.

The report shares insights on workers' compensation and salary continuance insurance, as well as emerging employee benefit trends and health, safety, and wellbeing legislative changes.

According to Howden, Australia's unemployment rate has dropped to 3.9%, lower than pre-pandemic levels, and the lowest since 2008. Last year, the price of labour, tightly bound to workers' compensation premiums, had begun to increase, forcing employers to explore innovative ways to retain and attract staff. Therefore, Howden predicts that workers' compensation premium rates will increase by 5%, depending on which state or territory, representing a significant challenge and opportunity for employers.

The report also noted that the COVID-19 pandemic has changed medical and claims services, with telehealth becoming mainstream, with medical, rehabilitation, and investigative services held virtually. With the telehealth model and other online services bringing efficiencies and lower price points, the report expects this trend to become permanent and warns that we should not underestimate this trend's impact on workers' compensation costs.

Read more: Howden Group outlines “strategic alignment”

Focusing on employee benefits, Howden's report said the life insurance industry has become accustomed to dealing with challenges since the pandemic began. In 2021, the Australian life insurance industry paid over $15 billion in claims, and over the past five years, insurers have combatted increasing claims costs by focusing on early intervention.

This year, the industry continues to grapple with increasing claims costs and has started to see the impact of significant legislative changes introduced last year. In addition, employers are expected to drive return-to-work outcomes to contain claims and premium costs.

Howden's report also identified the challenges brought by legislative changes:

• Protecting Your Super (PYS) and Putting Members' Interests First (PMIS);
• Your Future, Your Super (YFYS);
• Australian Prudential Regulation Authority's (APRA) intervention regarding individual disability insurance due to ongoing heavy losses increased capital requirements and changed product design;
• Low-interest rate environment placing pressure on investment returns and insurers open claim reserve requirements;
• APRA's intervention regarding premium volatility relating to superannuation group insurance policies; and
• Risk products recorded losses (after tax) of $1.41 billion in 2020, a $1 billion drop in profit from the previous year.

“These changes impact an organisation in a number of different ways, including the increase in underinsurance at a time when the rate of illness and injury is continuing to increase,” the report said.

For 2022 and beyond, Howden's Risk Market Outlook 2022 expects to see the following key benefit trends:

• Evolution of employee value propositions (EVP) due to labour shortage;
• Hidden health costs of the COVID-19 pandemic;
• Employers will review diversity, equity, and inclusion (DEI) policies;
• Employers will shift their leave policies above legislative requirements to suit their workforce and meet the changing social expectations;
• The superannuation sector, insurers, and employees will grapple with how the legislative changes impact them and their employees; and
• Continued increase in employers purchasing cover for the first time after superannuation legislation changes.