APRA: Industry not responsible for rising costs in PI Insurance

The Australian Prudential Regulation Authority (APRA) said today that rising premiums for professional indemnity insurance are essential to secure the prudential safety of the insurance industry, and are not the result of profiteering by insurance companies.

APRAs Head of Enforcement, Dr Darryl Roberts, today told an Australian Professional Indemnity Group seminar in Melbourne that insurers were in fact losing money on the professional indemnity product.

For every $100 of premium received for professional indemnity insurance, the industry is paying out over $145 in claims and expenses, he said. The indications are that professional indemnity insurance is on average underpriced by around 50 per cent. This level of underwriting loss is simply unsustainable and must be reversed if the insurance industry is to remain adequately capitalised into the future.

According to Dr Roberts, premium rises in professional indemnity insurance are the result of two specific factors.

First, the enormous increases in claims over past decades as community expectations have moved toward a higher level of litigation activity and court awards. Second, the massive loss of capital in the international reinsurance market following September 11 compounded by several successive years of sharply declining equity markets.

Dr Roberts advised professionals against resorting to unregulated insurance or under-insurance as a reaction to the problem.

He added: APRA sees the best prospect for more affordable professional indemnity insurance as comprehensive tort law reform by the States, alternative dispute resolution arrangements that avoid litigation costs and, finally, self-regulation by the professions to mitigate risk and reduce the incidence and severity of adverse outcomes.

A copy of Dr Roberts presentation is available on the APRA website at www.apra.gov.au

APRA is the prudential regulator of the financial services industry including banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. It currently regulates $1.5 trillion in assets for 20 million Australians.

For further information: Media Enquiries only:

APRA Call Centre
Susan Morey

1300 131 060 APRA - Public Affairs

02 9210 3384

0438 124 524