ACC change could lift insurance costs

By RICHARD BRADDELL

WELLINGTON - Private insurers, sidelined from the accident compensation market as workplace accident insurance reverts to ACC control, are facing financial pressures, says a director of the international credit rating agency Standard & Poors.

The agency's Melbourne-based managing director of insurance, Ian Thompson, says the insurers will be feeling pressure to raise premiums and possibly even consider quitting the New Zealand market after poor results last year.

He describes the change in the accident compensation market as a blow to the insurance industry, and says the agency expects commercial insurers to raise premiums over the coming year after a poor underwriting performance.

While personal insurance returned to profitability after premiums were raised in response to rising motor vehicle claims and burglaries in Auckland two years ago, the insurers' underwriting performance had also softened again.

Mr Thompson said the reversion of workplace accident insurance to an ACC monopoly took away the only chance for growth in what was essentially a mature, well-insured market.

"The ACC market was a terrific opportunity ... because it provided growth for the industry," he said.

"That was an advantage because you could spread your fixed costs over a bigger portfolio of risks."

With ACC off the agenda, insurers would have to recoup the start-up costs of getting into the market as well as deciding how they would redeploy the capital they had raised in expectation of writing more business.

Many might decide to repatriate capital to their foreign parents.

"It's a blow to the efficiency of the industry; it's a blow to their growth opportunities," Mr Thompson said.

However, other issues had to be addressed. In particular, insurers ap- peared to be underpricing earthquake cover and were using the premiums to support other insurance activities.

"I think basically you've got a market that's on notice. At this stage we would say that there are negative characteristics, but we think it will stabilise. If it doesn't, there could be some pressure on ratings."