Underwriting agency Dual remains committed to the management liability (ML) market, despite a rise in claims causing “significant loss ratios” in the past three years.

Dual Australia MD Peter Bailey has announced a raft of changes to its ML product, including premium increases of 25-150%.

In a note to brokers he says there was a lack of historical loss data when the company launched ML in 2007, because the product was relatively new.

“This made actuarial pricing of ML much more an art than a science,” he said. “In the early days it was very much a ‘suck it and see’ approach in terms of both risk selection and setting sustainable premium levels.”

Claims activity was initially benign and product take-up slow, so Dual and others in the market cut premiums to make it more attractive, he says.

The global financial crisis led to an increase in take-up, but after the crash the frequency and size of claims shot up, largely because of fraud, unfair dismissal and occupational health and safety issues.

“By the end of 2012 the loss ratios were up above 100%,” Mr Bailey said.

Apart from premium rises, the corrective measures include amendments to deductibles and sub-limits, the introduction of industry exclusions and turnover and staff number thresholds to ensure the product is sold only to SME businesses.

The changes aim to “urgently correct the portfolio”, to ensure its “long-term viability”.

“We’re not pleased that we haven’t made money for our capacity-providers on this product,” Mr Bailey said.

However, Dual and its capacity-providers are bullish about the future of ML, he says.

With more than 2 million private companies in Australia, Mr Bailey says if just one-quarter take up an ML policy the market could be worth $1 billion in gross written premium.

“This could be the next big product in the Australian general insurance industry.”