Australia:New technology push up motor repair costs

In domestic motor business, claims costs are being driven up by the increasing cost of repairs on new technology, though claim frequency is flat, says Taylor Fry, an analytics and actuarial consulting firm.

In its Radar report, an annual roundup of Australia's insurance landscape, the firm says the increasing cost of car repairs is driven by new advanced driver-assistance systems (ADAS), which are expected to be in 40% of vehicles by 2020. Despite the proposed increase in safety these features add, insurers are yet to benefit from noticeable decreases in claim frequency.

There has been increased regulatory focus on consumer outcomes for purchasers of personal lines products in the aftermath of the inquiry by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This may prompt insurers to review their pricing strategies, particularly regarding new versus renewing customers.

Some insurers are already including comparative pricing information in anticipation of it being a requirement in the upcoming General Insurance Code of Practice. This may have a negative impact on renewal rates, with consumers more likely to shop around once they have greater visibility over premium changes.

CTPL

In compulsory motor third party liability (CTPL) insurance, the combined ratios for all jurisdictions together have been increasing over the past three years, although they remain below 100%. The increase in gross loss ratio over the latest half year was most marked for New South Wales, but it is still tracking lower than the other jurisdictions.

NSW CTP claim numbers for the 2017 scheme are lower than expected, but the proportion of minor injury claims has been higher than anticipated. The regulator is currently reviewing the definition of minor injuries. Further, while much of the estimated cost of the new scheme is associated with awards for damages through common law, it is too early to gauge the volume of these claims.

Insurer profits in the Queensland CTP scheme are falling, as the regulator’s steps to reduce the width of the premium bands and reduce margins in the ceiling that allow for future superimposed inflation take effect. The government is also introducing legislation later this year to address ‘claim farming’ in the scheme.

Taylor Fry also notes that within weeks of the SA CTP market becoming competitive (1 July 2019), all participating insurers were selling policies for Class 1 vehicles (generally, passenger cars) at the lowest price permitted by the regulator. It is almost certain scheme design caused insurers to compete aggressively, but it will be some time before the impact on profitability is known.

Commercial motor

Market conditions for insurers of commercial classes have been enhanced over the past year by an easing of the downwards pressure on premium. The resulting increases in commercial motor rates were well in excess of claims inflation. This contributed to improved profitability, with the net underwriting combined ratios for FY2019 the lowest since FY2014.

Although claims inflation is currently benign, there is some concern over future inflationary impacts associated with the cost of repairs on high technology vehicles. The cost of imported parts is linked to the Australian dollar exchange rate, which weakened considerably during FY2019. There may be potential impacts on distribution arrangements through changes to commission structures following the Royal Commission, says the report.

Source: Asia Insurance Review