December 2004 - Now is not the time for complacency
 

The 2004 AILA national conference was a great success.

Rigorous debate of current industry issues was combined with unique social activities showing the best of Western Australian hospitality. The varied program ensured delegates received the latest information on trends affecting several sectors of the industry.

For those who were not able to attend, there are now several papers available in the Resources section of the AILA website.

Thank you to the committee, speakers, chairmen and delegates for making the conference the high point of the insurance year. I hope to see you all in Tasmania in November 2005.

Anecdotal evidence on the progress of tort reform has suggested, over the last few months, that claims activity has slowed. It will be some time before new statistics reflect the full benefits but some trends are emerging.

Now is not the time to be complacent and stop or roll back aspects of liability reform. While the September 11, 2001, terrorist attacks together with the drop in the world equity markets had some impact on the price increases of 2001 and 2002, the trend toward increased premiums to counter increased costs had begun earlier.

Australian Prudential Regulation Authority statistics show the number of liability claims increased 60% between 1998 and 2000. During the same period, consultants KPMG estimate underwriting losses across the industry were more than $2 billion. Clearly, the industry needed reform to remain viable.

There is no doubt 2003 was a good year for general insurers with underwriting profits recorded by all major insurers. However, the industry still has not made up the lost capital sustained before 2001.

The JP Morgan Deloitte survey released in October attributed the "exeptionally strong" figures to "the perfect storm" conditions of rising premiums, the tightening of policy terms and a favourable claims environment. The survey authors warned that, although the insurance cycle would be less volatile and shorter, commercial premium prices had already begun to soften and personal lines would soon follow suit.

The survey found that based on underwriter and broker responses, commercial premium rates during 2004 declined on average by 4%. "Importantly, both the underwriters and the brokers believe that rates will decline in 2005, with the underwriters predicting an average decline of 3% and the brokers forecasting an average decline of 5%," the report said.

In a softening market, replacement of lost capital will remain a major challenge for insurers around the world. Australia, in particular, will feel the effect of falling prices because markets such as the United Kingdom, which has not introduced minimum capital requirements at the same level as Australia, will become an attractive alternative for insurance buyers.

I wish to extend the compliments of the season to all members.

Peter Backe-Hansen

AILA President