Margins in professional indemnity (PI) and public liability insurance have come under further pressure as global and domestic insurers trade pricing jabs in the $2.6 billion liability market.

According to a new report prepared by the Australian Prudential Regulation Authority (APRA), average premiums for both lines have fallen for the third straight year, running parallel to cuts in the broader commercial lines segment in which premiums fell an average 9% in 2006.

PI insurance cost businesses an average $3867 in 2006, down 14%, according to information released by APRA's National Claims and Policies Database. In public liability, average premiums fell 9% in the year ended December 31 and are now 28% down on 2003 levels.

Axa Australia is one industry heavyweight pushing lower premiums, with the company reportedly providing PI insurance to licensed advisers at 50% below market values.

Despite an increased public liability and PI uptake, gross written premium in public liability fell 7.3% to $1.5 billion and PI was down 6.7% to $1.05 billion.

WA and the NT bucked the national trend by increasing gross written premium for public liability. Earned premium - the total premium earned by the insurer on all policies in force during a calendar year - in Queensland, WA and the NT also rose against a national decline.

All three states managed to boost earned premium in PI lines despite a national downturn, with Queensland and WA up 2.8% and 2% respectively.

Assistant Treasurer Peter Dutton credited tort reform in 2002 for falls across both liability lines.

"The reduction in premiums for another year shows that the benefits of tort law reform are being passed on to consumers," he said. "Strong competition in the liability insurance market following the Government's insurance reforms is allowing consumers to benefit from cheaper insurance."