Professional indemnity (PI) and public liability (PL) premiums are continuing to rise, but there’s light at the end of the tunnel, according to the Australian Competition and Consumer Commission (ACCC). In a report to the Federal Government – ordered in July last year to assess the impact of tort reforms on premiums – the ACCC says most insurers expect rises of 11-20% in PI and PL premiums this year.

The report, released yesterday, is based on insurers’ data up to last December and confirms that PI and PL premiums have risen over the past five years as a result of increased claims costs. The report said underwriting profit “is just one part of the overall profit picture for a particular class of insurance. This underwriting profit has been secured, in large part, by recent premium increases.” 

New ACCC Chairman Graeme Samuel says insurers are experiencing a turnaround in liability classes. “Insurers are expected to make an underwriting profit in these classes for the year ending 31 December 2002,” he said.

The report is the first in a series of four to be produced over the next two years, and broadly agrees with the recently released NIBA brokers’ mid-year survey.  The ACCC said PL premiums rose an average 19% in 2001 and 44% in 2002, and PI premiums rose an average 31% in 2001 and 36% in 2002.

Assistant Treasurer Helen Coonan, who is meeting state and territory treasurers in Adelaide tomorrow to discuss tort reform progress, says PI and PL loss ratios are falling. Commenting on the report yesterday, she said the loss ratio for PL in 2001 was 121%, falling to 96% last year. The PI loss ration was 114% in 2001 and 85% last year.

“These results show that the market for public liability and professional indemnity insurance is increasingly becoming more attractive for insurers.”

The ACCC says it’s still too early to tell the full impact tort reforms will have on lowering insurers’ costs and the extent to which insurers will pass on any cost savings.

“As the first in a series, this report is an important historical stocktake”, Mr Samuel said. “Few of the reforms announced by governments had taken effect in the period covered by the report, so the actual impact of those reforms on premiums was not yet apparent.”

He said with reforms, some insurers expect that this year PL claims costs will be reduced by around 5% and premiums constrained by about 3%. In PI, claims costs will remain the same this year and there will be no constraint on premiums. “This is because PI claims under professional indemnity policies tend to reflect economic loss rather than personal injury. Most of the law reform to date has focused on personal injury rather than economic loss.”

Other insurers considered it too early to quantify the impact of government reforms on premiums.

Senator Coonan said the results show “we are on the right track to delivering more affordable public liability insurance to the Australian community”.

“But for professional indemnity, the outlook is not so good with no adjustments expected to insurers’ pricing structures in 2003 as a result of law reform. This analysis brings in to sharp focus the need for all states and territories to do more for Australia’s professionals.

She said the Government will amend the Trade Practices Act and other relevant legislation to support professional standards legislation which has already been enacted in NSW and WA.