The Law Council of Australia (LCA) report which criticised insurers’ returns on capital has been challenged by an independent actuarial report commissioned by the Insurance Council of Australia (ICA).

The new report, by Finity Consulting actuary Estelle Pearson, has concluded it is too early to estimate the impact of tort reform on insurers’ profits because only a small number of claims have been settled since the introduction of the reforms.

The LCA’s report, by actuary Richard Cumpston, raked the insurance industry over the coals for allegedly reaping high profits in the face of inadequate compensation for injury victims.

But the Finity report says Mr Cumpston’s findings “need to be treated with some caution as it is dependent on a number of approximations and extrapolations”.

It also says public liability (PL) and CTP insurance are long-tail classes, and their profits would only become clear over a number of years. Ms Pearson says only 12% of claims, representing more than 50% of the claims costs, have been finalised from the first year that the reforms were introduced five years ago, and a level of profit cannot be accurately determined yet.

The Finity report also says premiums reduced 35% in real terms since the reforms were introduced. “It is unlikely insurers would absorb any significant wind-back to tort reform within current prices,” Ms Pearson said. This is particularly relevant  “given the uncertainties that exist” regarding the level of post-tort reform claims costs.

ICA Executive Director Alan Mason says the Finity report shows good profits in 2004 were due to a wide range of factors other than just tort law reforms, and that those reforms did benefit the cost and availability of PL insurance.