THE PEAK Australian insurance body has hit back at claims that, even despite recent tort reform, premiums have not been significantly reduced, also rejecting claims that recent profits announced by insurers were due to these reforms.
Reacting to Queensland Chief Justice Paul de Jersey’s claims that promised reductions to insurance premiums have not occurred, Insurance Council of Australia (ICA) executive director Alan Mason said that the Australian Competition and Consumer Commission’s most recent pricing review found that liability premiums had dropped 15 per cent in the first half of 2004, adding that further reductions are expected.
Referring to recent changes in personal injury legislation across the country, the Chief Justice said “time having progressed, we are now in a better position to assess the social justification for what has occurred. The theory, that insurance premiums would reduce, has apparently not been borne out”.
Mason said he thought Chief Justice de Jersey had changed his mind since 2003, when he told the ICA in a conference in Queensland that the Government’s efforts to reform the law should be applauded, “not because they support any particular industry, but instead because they appear to represent a reasonable solution to an otherwise intractable problem”.
Mason rejected claims that recent profits announced by insurers were due to tort reform, adding that the insurance industry believes that the reforms are working and that “they strike a balance between the right of injured people to receive proper compensation and the ability of the community to have access to affordable insurance cover”.
According to the ICA, tort reform was undertaken in a climate in which claims numbers and claims costs were rising dramatically. “Australian insurers recorded $1.6 billion in gross underwriting losses between December 1998 and December 2000 and claims increased from 48,000 a year to 89,000 over the same period, an increase of 85 per cent,” Mason said.
“The cause went well beyond any impact from the insurance ‘cycle’. The claims blow-out and the related underwriting losses, which were already clearly evident before 2001, were the main drivers of premium increases,” he said.
The HIH collapse and the World Trade Center attack exacerbated an existing problem, according to Mason, “which government decided had to be addressed”. “Insurers did not ask government to fix their commercial problem. They did what any business must do to remain viable — they withdrew from unprofitable areas or continued to increase prices to match the increases in claims costs and to stem losses,” he said.
“As a consequence, small businesses, and local community and sporting groups found that liability premiums were becoming unaffordable or worse, unavailable, and they began making representations to governments. All nine federal, state and territory governments of both sides of politics agreed on the need for reform.”