The Australian Competition and Consumer Commission's fifth report monitoring public liability and professional indemnity insurance costs and premiums was released by the Australian government today.
On 17 February 2005, the Minister for Revenue and Assistant Treasurer, the Hon Mal Brough, announced that he had requested the ACCC to continue to monitor costs and premiums in these classes of insurance on an annual basis for a further three years.
The Public liability and professional indemnity insurance—fifth monitoring report—July 2005 covers data for the 12 month period to 31 December 2004. This report therefore supersedes the fourth report, which was an interim report based on data for the first six months of 2004.
The report found that the average public liability insurance premium fell by 4 per cent in 2004, with most insurers expecting premiums to fall further in 2005. There was no substantial change in the average size of public liability claims settled in 2004, and both the number and frequency of claims incurred by insurers have remained relatively stable since 2002. Insurers' financial performance from underwriting public liability insurance declined slightly compared to business written in 2003.
ACCC Chairman, Mr Graeme Samuel, said that most insurers believed that the number and cost of public liability claims, as well as average premiums, were lower in 2004 as a result of tort reforms than they would have been without tort reforms.
In respect of professional indemnity insurance, the report found that the average premium also decreased by 4 per cent in 2004. However, the average size of claims increased by over 60 per cent in 2004 due to a small number of high cost claims in that year. There was little change in the underwriting financial performance from writing professional indemnity insurance.
The report found that most insurers believed that tort reforms had either no or minimal impact on the number and size of professional indemnity claims in 2004. Insurers said that competition was the main driver of the fall in premiums.
"The ACCC also looked at a number of sources of information other than the monitored insurers to help assess the impact of tort reforms", Mr Samuel said.
Data on the number of personal injury writs and civil claims in Victoria and New South Wales shows that claimants in both states rushed to file claims with courts before reforms came into effect such that many of the claims that would have otherwise have been filed after the cut-off date were brought forward. Although the net effect of reforms on the number of claims filed with courts will become clearer over the next few years, the additional data available since the ACCC's last report shows that the number of claims being lodged with courts has remained low.
Furthermore, information provided by the Health Insurance Commission shows that there was a significant decrease in 2004-05 in the amount of money that it recovered from people who had received compensation in relation to injury or illness.
Mr Samuel also noted the difficulty in making an assessment of the relationship between insurance premiums and the effect of tort reforms.
"Tort reforms are expected to lower the costs of claims for insurers. However, the pricing of public liability and professional indemnity insurance is more complicated than for most products, since the actual cost of providing insurance and the level of investment returns earned by insurers only become known many years after the product is sold.
"That said, the data provided by APRA indicates that there were a large number of insurers active in both classes of insurance in Australia during 2004, and that neither sector is highly concentrated. The ACCC therefore expects any savings arising from tort reforms to feed through to lower premiums, as the basic principle of competition that applies to any business operating in a market supplied by a large number of firms would appear to equally apply to insurers. That is, if a company consistently price above a competitive rate and the insurer will lose sales to rivals; consistently price below that rate and revenues will not provide sufficient return to maintain equity in that line of business".