The Victorian market is too competitive to allow premium rises that exploit the fire services levy’s (FSL) removal, insurers told a public hearing last week.

But base premiums – affected by catastrophe claims, increasing building costs and low interest rates – are expected to continue rising, they say.

Five major insurers told the FSL Monitor’s hearing they set base premiums using technical pricing models, then add government charges.

Monitor Allan Fels pressed company representatives on whether the levy’s removal would give them room to put up prices.

Insurers say consumers will generally be better off after the July 1 cut-off, but base premiums could still increase as costs rise or risks change.

RACV Insurance underwriter IMA says 40% of its customers will experience premium increases in the next year, with decreases for the rest.

This is nothing new, it says. Its building insurance customers have seen 30% premium increases before the levy’s removal.

Suncorp says its national home insurance premium pool has increased 16% in the past year, mostly on price increases but also because of market growth and customers adding to cover.

On average, premiums should fall after the levy’s removal, unless individual property risk factors increase and offset the difference, EM Home Portfolio Stephen Jeffery told the hearing.

“We are confident there is a healthy level of competition that wouldn’t allow us to put through increases that are higher than necessary,” he said.

QBE CFO Victor Walter says the transition is a “significant operational challenge”.

An “inadvertent glitch” meant 9300 clients had bill errors, but QBE has refunded those who were overcharged.

Mr Walter says rates increased 7% nationally last year and rises in the next year “would not be out of line with the numbers Suncorp suggested”.

He says there is “no incentive” for the insurance industry to exploit the levy’s absence.

“Given the regulations and our own corporate morality, we won’t increase rates by 26% because we dropped the FSL.”

CGU told the hearing it has under-collected by $1.9 million against its $55 million liability in the past five years, and it expects to slightly under-collect this year.

GM Business Partners Malcolm Freeman says customers with renewals due in six weeks can expect a 7% increase in the base premium but an overall lower price without the FSL.

Allianz representatives would not guarantee all customers a lower price, arguing it depends on individual circumstances.

But it says the public will be better off and its customers are already paying less at renewals than a year ago.

Professor Fels says the hearing had made insurers “more aware of the need to inform consumers much more fully of what is happening to premiums”.

“I felt there was a very serious lack of information going to the public,” he told insuranceNEWS.com.au. “There still remains a deficit.”

Also see ANALYSIS