IAG head Michael Hawker wants the insurance industry to explain to consumers how massive premium hikes are “directly linked to the cost of claims” rather than just a drive for increased profits. Speaking without notes at the Insurance Council of Australia's WA conference in Perth last week, Mr Hawker said the public needs to understand insurance is a community product which everyone pays for.

He said the problem with long-tail classes is that the community wants to claim more than it is willing to pay in premiums. “Insurers are merely setting premiums to reflect the mathematical outcome of increasing claims costs.”

He says insurers are only retaining a relatively small part of the premium as profit.

Insurance companies “have a social responsibility to pay claims, and to be able to do that they have to price risk appropriately,” Mr Hawker said. “Risk is a function of claims costs which in turn is a function of community behaviour.”

Pricing risks such as liability will continue to be difficult “as long as people believe honest mistakes should be treated as negligence”, he said. “Until that attitude changes, it will be difficult to cover areas such as public liability, professional indemnity, medical indemnity and directors’ and officers’ liability.”