PI premiums to remain high for 12 months
The insurance industry’s high professional indemnity (PI) premium levels are here to stay, with an estimate of at least 12 months before insurance companies are able to lower them, according to PI insurance broker Drew Fenton.
Speaking at theCPA AustraliaPI Insurance Forum, Fenton of Fenton Green & Co, says premiums will only come down when insurers show better than market profits so “the premium levels we see today are going to be with us for some time”.
Fenton says not only are underwriters playing it safe and taking a conservative approach to risk, but they are buying more reinsurance than in the past.
This reduces their potential claims costs and produces a flow-on effect of increasing the cost of premiums, according to Fenton.
“They are pushing underwriting responsibility down the line to junior underwriters. Once only managers would worry about underwriting results. This new structure has the effect of a more conservative approach - less cover, higher premiums and excesses,” Fenton says.
“They are taking a very conservative approach to claims reserves. Their actuaries are taking a conservative approach. No insurance company will want to be caught out with under provisioning of their claim liabilities.”
“Management sees this as an opportunity to get their balance sheet in order. With the conservative approach to claims it will take a lot of premiums before we see significant profits from the underwriters.”
Fenton says the biggest factor in reducing premiums in the future will be new capital in the insurance industry.
Also speaking at the forum, general manager of diversified institutions at theAustralian Prudential and Regulatory Authority(APRA) Keith Chapman announced that at the request of the Assistant Treasurer, APRA has commenced industry consultation on introducing a public liability and professional indemnity claims database.
According to Chapman, the lack of comprehensive data on claims costs appears to be a “significant constraint on the determination of appropriate premiums”.
“The lack of any substantive data has also been identified as inhibiting the development of new and more flexible insurance products in those areas,” Chapman says.
“The project will aim to develop a database which will assist insurers to address these issues.”
APRA says the initial collection of data will occur in the second quarter of 2004, after which it will be available to insurers.
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