APRA has come out in strong defence of the insurance industry, telling a Senate inquiry into the public liability crisis that consumers get “a free ride”.

“The fact is that Australian policyholders have been getting a free ride in the form of unduly cheap premiums for a number of years and they now need to accept that this was an aberration that may never recur,” GM Darryl Roberts said.

He said the insurance industry was focused too much on market share and too little on commercial price setting and sustainable profits. “APRA’s perspective on this issue is that we do not see higher premiums as either necessarily undesirable or completely avoidable.

“From our perspective, rising premium rates, due to both cyclical and one-off factors, are necessary if industry profitability is to start climbing back towards viable levels. This is not a matter of clawing back past losses, but rather of ensuring future viability,” he said.

APRA has also indicated it will not support any form of price regulation. “Price control distorts decision-making in markets,” Mr Roberts said. “Any action that might undermine sound commercial decision-making in the insurance sector… would pose risks to profitability and ultimately to solvency.”

Mr Roberts said the most important protection a policyholder can have is “the survival of the insurer, as a failed insurer cannot pay claims”.

“For an insurer to survive, its premiums need to be commensurate with the scale of the risk it takes. It is no comfort to the community to have cheap insurance at the expense of industry solvency,” Mr Roberts said.