Federal Treasurer Peter Costello wants insurers to balance their desire for profits with their responsibility to give policyholders a fair deal. Speaking at the Insurance Council of Australia’s (ICA) annual Canberra conference last Thursday, he reminded the industry he has ways of making such a balance happen.

He was commenting on a new Australian Competition and Consumer Commission (ACCC) report which shows premium increases in public liability and professional indemnity have been slowing since 2002 as profitability returned to the market.

The ACCC has been monitoring costs, premiums and profitability for public liability and professional indemnity insurance every six months over two years.

The latest ACCC report, released late last week, shows an increase in public liability premiums of about 17% in 2003 compared with 44% in 2002. Professional indemnity premiums increased about 15% in 2003 compared with 29% in 2002.

The report examines the effect on premiums of reforms agreed over the past two years by the federal and state governments which focus on minimising the cost of personal injury claims through caps and thresholds on court-awarded settlements. It also provides for structured settlements, changes to negligence laws and reduced legal costs.

Mr Costello said the latest figures are encouraging. “I am pleased to see the industry is showing profitability [after] the turmoil of recent years,” he said. “Companies are now rebuilding their capital as a result of better underwriting performance.”

Mr Costello told the 120 delegates it was important for insurers to maintain credibility with the insuring public. “It is important for them to appropriately balance the entitlement of shareholders with fair prices for policyholders.

“This is an encouraging initial signal, although the Government and consumers will expect to see the benefits of recent insurance reforms continuing to flow through to premiums.

“If evidence indicates that insurers are not passing on the benefits of reforms, the ACCC will consider seeking further powers to effectively monitor premium prices.”

Mike Wilkins, ICA President and Promina MD, echoed the view that there has been a slowing in price growth in 2004.

“The recent National Insurance Brokers Association survey has confirmed that rates have eased and in some cases reduced, especially across commercial classes,” he said. “In the problematic classes like liability and professional indemnity, we are not seeing the huge rate rises of previous years.”

Mr Wilkins said the conventional view is that there will be a downturn in the insurance cycle.

“However, I believe this time will be different, and the industry by and large will resist that temptation because it is not in the interests of shareholders, consumers or governments for us to go down that road.”