The future of insurance in Australia

As the Australian insurance industry faces rapid technological advancements, shifting customer expectations, and increasing climate-related risks, it stands at a pivotal juncture. Drawing from PwC’s global publication Insurance 2025 and Beyond, this publication is the first in our The Future of Insurance in Australia series. This series will focus on five overarching themes and ten underlying imperatives, to help insurers reimagine their business models and capture future growth, providing specific insights relevant to the unique challenges and opportunities faced by the Australian insurance industry.

We believe that a truly purpose-driven, customer-centric, digitally empowered insurance industry is within reach. We trust that you will find our analysis of the current state of the industry and our vision for its future thought provoking.

"As we navigate the complexities of a rapidly changing world, understanding these key topics will be essential for shaping a resilient and innovative future for the insurance industry. Our commitment to leveraging insights and staying ahead of trends will ensure that we continue to provide our clients with the strategies and solutions necessary to meet the evolving needs of their customers."

Antonie Jagga, PwC Australia Insurance Lead

Five trends affecting the future of insurance

An ambitious agenda must necessarily start with a thorough understanding of the forces that will likely shape insurers’ growth trajectory—over the next five years and beyond.

1. Widening trust gap in an uncertain world

Regulatory compliance is considered the most significant factor challenging Australian businesses¹. For the insurance sector, regulatory bodies like Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) have intensified their oversight in recent years, particularly with respect to pricing transparency and fairness. These measures are essential for consumer protection but may also be considered to impose operational strains on insurers. The industry is challenged with navigating complex compliance requirements while striving for technological advancements and innovative product offerings.

Which internal factors do you believe will present the greatest challenges for your company over the next 12 months?

Which external factors do you believe will present the greatest challenges for your company over the next 12 months?

^{* including upskilling; diversity, equity and inclusion; employee value proposition; hybrid working PwC's 27th Annual Global CEO Survey - Australian insights}

To address these challenges, companies must shift from a reactive stance to a position of proactive collaboration with regulators. Insurers should also consider global regulatory trends as a way of identifying potential developments in Australia, as well as robust risk management practices to ensure resilience and sustained growth. By engaging in continuous dialogue, insurers can help shape frameworks that protect customers while fostering innovation.

A key aspect of the regulatory landscape for insurance companies in Australia is the high expectations set by the regulators, when it comes to conduct and treating customers fairly. In recent years there has been increased focus on customer experience and fairness.

Last year ASIC called for insurers to both improve pricing practices to ensure that they deliver on pricing promises made, and to improve claims handling practices to better manage claims outcomes as covered in PwC’s Five pricing promise questions insurers should ask themselves in 2023². More recently the Parliamentary Inquiry³ called for improved customer outcomes.

These developments highlight a number of areas where improvements are needed for the industry to build trust. Critically, insurers need to ensure that the products they sell are clearly understood and designed to meet the customers’ needs.

One of the other significant challenges presented by the landscape for insurance companies in Australia is the implementation of new regulations. Insurers have just undergone a substantial period of investment and change to implement AASB17 Insurance Contracts (AASB17) and now must pivot to the implementation of two additional long-awaited regulations: the Financial Accountability Regime (FAR) and CPS230 Operational Resilience (CPS230). The implementation dates for both are fast approaching: FAR goes live on 15 March 2025, and CPS230 will be effective from 1 July 2025. Regulators expect that significant progress will have already been made to implement both and attention should now start to turn to the smooth transition from project to business as usual to ensure that post Day 1 implementation, the business is ready to operationalise these regulations.

FAR represents a great opportunity for increased clarity of accountabilities and roles within organisations. Scenario workshops have proven a valuable method for testing the hand offs between roles and accountabilities, and to explore areas of reliance between functions and agree how these are best managed through reasonable steps. Equally, reasonable steps present an opportunity for Executives and Directors to critically evaluate the processes and controls that support them in discharging their accountabilities to ensure these are effective. This dovetails well with CPS230 which considers roles and accountabilities beyond function and rather by critical operation and heightens the active oversight and monitoring of material service providers, including by the Board.

In addition to these challenges, insurers must also prepare for the Australian Sustainability Reporting Standards (ASRS), which mandate disclosures on climate-related plans, carbon emissions, and associated financial risks starting from 1 January 2025. These standards align with global best practices and require insurers to make significant investments in technology and expertise. Further details on the ASRS are covered in the 'Climate Risk and a Focus on Sustainability' section.

2. Rapidly evolving customer needs and preferences

Another evolving area of interest for the insurance industry is customer needs and how these are changing due to technological advancements and lifestyle shifts. In today’s world, customers demand personalised, flexible, and transparent insurance products, often preferring digital interactions over traditional face-to-face engagement.

Any innovation must be balanced with regulatory compliance to ensure sustainable growth and enhanced customer satisfaction. Insurance companies must ensure their new offerings are compliant and customer-centric, paving the way for a more resilient and dynamic insurance industry that both appeals to the next generation, and is equipped to support an ageing population.

The immediate imperative for insurers with respect to customer needs is to reinvent their business models to put the customer first and to support customers by providing opportunities to access protection as part of everyday experiences. For personal and commercial lines insurers, this may mean designing outstanding experiences for partners and brokers, as well as within embedded arrangements, and making full use of artificial intelligence (AI)-powered insurance and financial tools and platforms to support customer engagement, buying, and service.

Placing the customer at the centre requires a holistic approach that encompasses comprehensive data analysis to better understand customer preferences and behaviors. Insurers need to leverage this data to provide more personalised offerings and proactive services.

Aligned to this, leading insurers can seize the opportunity to tailor their propositions to reflect protection needs. By leveraging sophisticated data analytics, they can design tailored products that meet individual needs, expanding their offerings and diversifying their risk portfolios.

At the most advanced, for personal insurers this could include insurance-in-a-box propositions, which bundle asset, health and life protection tailored to different life stages. Examples of this could include pay as you drive, rental contents and travel protection for younger customers, with multi-home, vehicle and family life protection for older customers. For commercial carriers, this could mean considering adopting account-level approaches, offering brokers and insureds the option of selecting tailored coverages, combining traditionally siloed products (such as property, fleet and management liability) at the point of quote, supported by appropriate pricing to reflect both the chosen level of protection and underlying business risk.

3. The increasingly digital and AI-driven world

Artificial intelligence (AI) is set to be transformative for the insurance industry, offering opportunities for product innovation, operational efficiencies, and enhanced job satisfaction. By leveraging AI technologies, insurers can create highly personalised products, streamline underwriting and claims processing, and gain better insights into risk factors and customer behaviours.

To what extent will generative AI increase the following in your company in the next 12 months?

^{PwC's 27th Annual Global CEO Survey - Australian insights}

Australian CEOs see significant potential in generative AI for operational efficiencies. Insurers embracing this technology will lead to product innovation and operational excellence, maintaining compliance and delivering needed solutions to customers.

Generative AI (GenAI) has the potential to bring about a revolution to productivity of insurers through agents, fraud risk extraction and enhanced insights. GenAI will not only make it possible to streamline various aspects of the industry but also to reinforce them and make them more efficient. For example, in the underwriting business, GenAI can support risk assessment by quickly and precisely analysing large data sets, thereby facilitating faster and more accurate decision-making. It can also take non-standard broker slips and structure these into tabular forms for ratings, enhancing the efficiency and accuracy of data integration and assessment.

In claims processing, it can automate daily tasks to reduce manual labour and minimise errors. Additionally, GenAI can play a crucial role in triage and ensuring customer claims are settled quickly. The 2022 Flood Response Inquiry report highlighted issues in dealing with the surge in claim volumes, which led to delays and vulnerable customer issues. By leveraging GenAI, insurers can more effectively manage claim surges, ensuring that customer claims are triaged and processed swiftly, thereby reducing wait times and improving customer satisfaction. This approach not only addresses the immediate needs of customers during high-demand periods but also means insurers don't need to maintain a massive claims team to handle these surges, which are likely to become more frequent as climate risks worsen.

Furthermore, GenAI can help develop personalised insurance products by analysing individual customer data and adjusting the range of coverage to meet specific needs. In customer services, chatbots run by GenAI can provide immediate support, efficiently resolve inquiries and boost overall customer satisfaction. This can increase business agility and competitiveness through a wide-ranging proactive approach that is difficult to achieve manually. GenAI can also contribute to fraud detection by identifying patterns indicating suspicious activities and protect insurers from economic losses.

GenAI can also analyse regulatory information to ensure that any adjustments to insurance products or processes do not result in regulatory issues or poor customer outcomes. By continuously monitoring compliance requirements and integrating them into decision-making processes, GenAI helps insurers navigate complex regulatory landscapes and maintain high standards of customer care. This ensures that innovations and adjustments driven by AI are both compliant and customer-centric, fostering trust and reliability in the evolving insurance market.

By introducing GenAI technology, insurers can raise operating efficiency, reduce costs, provide more responsive personalised services and remain on the front line of innovation in the ever-evolving insurance industry.

While Generative AI presents vast opportunities, insurers must remain vigilant about the unique risks associated with AI, especially given the highly regulated environment that they operate in and the inherently human and often compassionate nature of their business.

While formal AI legislation is yet to be implemented in Australia, organisations should be aware of global regulations, such as the EU AI Act, which is already in effect, and consider its impact on their global operations. Additionally, they should be mindful of existing local guidance, such as the Government’s AI Ethics Principles and existing regulation which are principles-based and technology-neutral such as the Australian Privacy Act.

With the insurance industry exploring customer-facing GenAI use cases such as hyper-personalised marketing using sensitive Personal Identifiable Information (PII) data, direct customer service, and claims processing, it is crucial for insurers to adopt a proactive approach to AI trust to meet market and customer expectations.

Here are some practical AI governance considerations that are applicable across the AI maturity curve.

Establish an AI ethics committee or AI centre of excellence: This committee should oversee AI deployments, ensuring they meet ethical standards and regulatory requirements. It will also address concerns related to AI use and facilitate feedback from both customers and employees.

Implement AI risk and impact assessments: These assessments are essential for new AI-driven products and services. They evaluate the potential effects of AI on customers and the market, ensuring any risks are identified and mitigated before deployment.

Create and distribute a GenAI transparency report: For organisations more advanced in AI governance, this report should outline the company's AI strategy and governance framework. It should be distributed to key stakeholders and detail how AI technologies are integrated into business processes responsibly.

By implementing these practical measures, insurers can harness the potential of GenAI while maintaining trust and meeting regulatory and ethical standards.

4. Climate risk and a focus on sustainability

Another evolving topic that presents unique risks and challenges for the insurance sector is climate change. In Australia, the frequency and severity of natural perils have increased, impacting insurers’ ability to model and price these risks accurately, as estimates based on past events may not adequately represent future experience. With rising premiums and customer retention rates affected, insurers must develop innovative solutions and strategic adjustments in product offerings.

Companies in Australia assess themselves as being ahead of the global average for climate-related business measures.

Which of the following best describes your company’s level of progress on each of these actions?

^{PwC's 27th Annual Global CEO Survey - Australian insights}

Australian consumers are already feeling the cost of rising premiums, with the price of home insurance increasing by around 14% between June 2023 and 2024. Unsurprisingly, customer retention rates have been impacted, with policy switching rising by up to 40% over the same period for both Motor and Home policies⁴.

With 3 in 10 policyholders now saying insurance is ‘a lot harder’ to afford than 12 months ago and 1 in 10 reporting feeling ‘very stressed’ about their ability to afford adequate coverage, insurance companies need to come up with innovative solutions and strategic adjustments in product offerings⁵. Insurers must prepare for the increasing risk of "uninsurability" by developing new insurance products that address the specific needs arising from climate change. This could involve creating policies that offer more flexible coverage options, integrating climate resilience measures, and providing incentives for customers to adopt sustainable practices. By doing so, insurers can ensure that coverage remains available and reliable for their customers.

Furthermore, customers are becoming more aware of the impacts of climate change and expect insurers to offer comprehensive coverage that addresses these new risks. They seek transparency in how climate-related risks are assessed and priced, as well as assurance that their policies will provide adequate protection in the face of increasingly unpredictable weather patterns.

Regulators are also intensifying their focus on how insurers manage, and report climate related risks. Following the finalisation of Australia's new sustainability reporting framework in September 2024, relevant organisations will be mandated to disclose their climate-related plans, material carbon emissions, and associated financial risks and opportunities starting from 1 January 2025. To comply with these new standards, insurers must promptly enhance their reporting readiness by strengthening data management, controls, and governance frameworks, especially as assurance requirements are anticipated to become increasingly rigorous over time.

The new Australian Sustainability Reporting Standards (ASRS) are designed to align with global best practices, ensuring consistency and comparability of climate-related disclosures. Insurers will need to integrate these standards into their existing reporting processes, necessitating significant investments in technology and expertise to accurately capture and report on sustainability metrics. This move aims to improve transparency and accountability in how insurers address climate-related risks, ultimately contributing to more informed decision-making by stakeholders and fostering a more sustainable financial ecosystem.

Drawing insights from European counterparts who have navigated the implementation of the European Union’s Corporate Sustainability Reporting Directive (CSRD), it is evident that achieving the required maturity level for robust climate-related disclosures may take longer than initially anticipated, particularly given the heightened scrutiny surrounding greenwashing and ESG litigation. Nevertheless, experiences from abroad indicate that insurers who initiate these processes early stand to gain significant advantages. Those who extend beyond mere regulatory compliance to assess the strategic and financial implications of sustainability may find themselves better positioned, more agile, and prepared for an evolving future. While regulatory compliance may drive change for some, leading organisations are identifying opportunities related to climate risk management and transition to net zero as a strategic priority. Identifying at risk locations and assets, developing new products, helping to build resilience, strengthening supply chains, and growing in a sustainable manner are all actions that can support a profitable transition.

5. Convergence, collaboration, and competition

The insurance landscape is shaped by convergence, collaboration, and competition. Convergence blends traditional insurance with other financial services and tech solutions, while collaboration leverages external expertise to enhance efficiency and product offerings. Competition drives innovation, often leading to mergers and acquisitions (M&A) as companies seek to expand their market presence and achieve economies of scale.

For insurers in 2025, technology is more than an enabler of strategy; it is a differentiator for market leaders. For insurers facing trust, customer, climate, and competitive pressures, aligning technology capabilities is critical. In this context, the imperative for insurers is to define how they will drive competitive advantage across core administration, data and integration, customer-facing systems, and reporting platforms. In parallel, insurers should have a clear understanding of how existing cloud capabilities will enable their competitive advantage, or how they will migrate legacy technology to the cloud to scale effectively, reduce costs, and remain competitive.

The path to developing these capabilities has also shifted for insurers. "As-a-service" offerings can help shift the onus of maintaining technology currency away from insurers to vendors or partners. Alliance partnerships can help insurers develop and maintain market-leading SaaS capabilities while avoiding large program spends. Leading insurers are also active in developing ecosystem relationships, with traditional ecosystem partners and technology partners through open APIs for ease of integration, connectivity, and out-of-the-box connections to other vendor products. The development of open APIs also enables insurers to access marketplaces and new capabilities from not only vendors and alliances, but also from startups, system integrators, and value chain partners.

Market leaders are also using AI capabilities to support differentiation and reduce costs. As AI models continue to improve in 2025, there will be increasing opportunities for insurers to interrogate data directly using natural language, reducing the traditional plethora of reports and dashboards and supporting faster insights for leaders and colleagues. In addition, AI can increasingly be used to take on more technology design and development; AI can be used to generate and review code, speeding deployment of new capabilities made available from cloud partnerships, alliances, and marketplaces.

While strategic technology alliances are a differentiator of innovation in the insurance industry, mergers and acquisitions (M&A) play an equally pivotal role in driving consolidation, scalability, and competitive advantage for the future. The M&A outlook remains resilient as insurers seek transactions with an emphasis on scale. As premium rate hardening has begun to stabilise, insurers are increasingly seeking inorganic growth opportunities to complement existing products. This, coupled with (i) increasing natural peril severity and frequency and (ii) persistent inflationary pressures is also expected to drive demand for scale and associated capital and operational efficiencies, respectively.

Whilst these drivers will be in part dictated by the insurance cycle, the need for transformational deals is expected to remain as digitisation and generative AI continue to revolutionalise the industry, with insurtechs and non-traditional market players (e.g. digital platforms) offering partnership or M&A opportunities for traditional insurers.

More broadly across the insurance value chain, M&A activity among distribution/broker businesses remains strong (in part as a result of Private Equity capital) but market participants will proceed with caution as rates begin to harden with an increasing focus placed on policy count growth (rather than policy value).

Map your path to remain competitive and resilient

In the rapidly changing landscape of the insurance industry, companies face a complex array of challenges and opportunities. From regulatory compliance and evolving customer expectations to the impacts of climate change and the advent of generative AI, insurers must navigate an intricate path to remain competitive and resilient. To prepare for the future of insurance, companies must take decisive and strategic steps.

Strengthen customer-backed propositions: Insurers must develop new future-focused propositions for customers, and work with partners to bring these to market to support growth. This may include working with embedded and ecosystem partners, and with technology and alliance partners to develop new and launch new propositions.
Enhance underwriting discipline and portfolio management: Effective risk selection, accurate pricing, and strategic portfolio management are crucial for achieving sustainable long-term profitability. Ongoing profitability is a necessary foundation to support investments in advanced technologies, capabilities, and transformative changes that will be essential to navigating the challenges of 2025 and beyond.
Embrace technological innovation: Insurers must invest in digital transformation to enhance operational efficiencies, improve customer experiences, and develop innovative products. By utilising AI-driven solutions, insurers can gain deeper insights, streamline existing processes and design innovative products and solutions.
Strengthen climate risk management: Insurers must develop robust climate risk management frameworks to accurately model and price risks associated with climate change. This involves investing in climate modeling technologies and collaborating and integrating climate considerations into their risk management and reporting frameworks.
Build trust and enhance customer relationships: Insurers should focus on building trust and fostering strong customer relationships. This includes ensuring transparency, delivering on promises, and providing reliable and responsive customer service. By prioritising customer needs and maintaining high standards of care, insurers can enhance customer loyalty and satisfaction, ultimately driving long-term success.

Shaping the future of insurance together

The future of the insurance industry is shaped by a convergence of regulatory demands, customer expectations, technological advancements, climate risks, and competitive pressures. To navigate this complex landscape, insurance companies must take proactive and strategic actions. By adopting these measures, insurers can enhance their resilience and drive sustainable growth.

The path forward requires a balanced approach, ensuring that innovation and compliance go hand in hand. As the industry evolves, those who are proactive and strategic in their actions will be best positioned to lead and thrive in the dynamic world of insurance. The time to act is now, and the steps are clear. Let’s embark on this journey to shape the future of insurance together.

^1._{PwC Australia. "CEO Survey." PwC. Accessed October 2023. https://www.pwc.com.au/ceo-agenda/ceo-survey.html}

^2._{https://www.pwc.com.au/insurance/five-pricing-promise-questions-insurers-should-ask-themselves-in-2023.html}

^3._{Australian Parliament House. "Flood Insurance Inquiry Reports on Industry Failures." Accessed October 2023 https://www.aph.gov.au/About_Parliament/House_of_Representatives/About_the_House_News/Media_Releases/Flood_insurance_inquiry_reports_on_industry_failures}

^4._{RFI Global, How insurance providers can support customers in challenging times, October 2024 https://rfi.global/how-insurance-providers-can-support-customers-in-challenging-times/}

^5._{RFI Global, How insurance providers can support customers in challenging times, October 2024 https://rfi.global/how-insurance-providers-can-support-customers-in-challenging-times/}