Squeeze deepens for insurers of Qld scheme

INSURERS in Queensland's compulsory car cover scheme are facing pressure with the State regulator further trimming the amount they can charge.

The forced reduction in the top price in Queensland's $1.3 billion compulsory third-party insurance scheme is the latest squeeze since the regulator in 2016 argued insurers were earning excessive profits.

While benefiting consumers, some insurers have arced up about recent cuts and argued the latest moves come amid margin pressures.

"RACQ is concerned with the current margin in the scheme given the significant increase in the frequency of minor injury claims," a spokeswoman for the customer-owned insurer said on Tuesday.

"When looking at CTP margins we need to remember that we are pricing now in preparation for claims many years down the track and the current scheme volatility makes this difficult."

Still, Suncorp at its recent profit results added that parts of CTP had been "working pretty well".

CTP offers protection for people injured in accidents. Only four insurers - RACQ, Suncorp, QBE and Allianz - offer cover and they charge within quarterly ceiling and floor limits.

These limits are decided by regulator the Motor Accident and Insurance Commission.

From October, all insurers are charging $344.20 for car owners. The premiums insurers can charge has been reduced by $6 for the quarter, and follows a $7 cut in the previous quarter.

Sources with knowledge of pricing said the regulator made the cut following a perceived overall improvement in injury claims and lift in some economic assumptions, and it believed the system still gave a fair profit allowance.

Both Citigroup and Morgan Stanley analysts, in a recent note on Suncorp earnings, cited the price reduction as one of the squeezes on the Brisbane-based financial giant's earnings. Citigroup predicted that the "scheme remains profitable".

Suncorp's chief financial officer Steve Johnston told analysts last month the cut would be a "small headwind".

"But it's hard to argue that the scheme isn't performing well," he said. "Frequency (of claims) is probably back to where we expect it to be and other aspects of the scheme seem to be working pretty well."

Queensland's CTP scheme accounted for $435 million of Suncorp's $8 billion in insurance premiums in 2018.

The state regulator in 2016 released research showing while the scheme had envisioned an 8 per cent profit for insurers - their earnings had actually hit between 25 per cent and 31 per cent in the previous five years. Those ceiling prices have since been continually squeezed, leading to concerns from insurers such as RACQ, which in 2017 threatened to pull out of the scheme.

One reform since flagged has been to stamp out claims farming - where people cold-call injury victims in hopes of selling details to lawyers. But the State Government in July pledged to introduce laws that would "protect people's privacy" to stop claims farming, and also raise awareness for consumers about the practice.

RACQ said it supported the State's move to "introduce legislation to criminalise claim farming in an attempt to address this issue, but believe it needs to go further".

Meanwhile, Suncorp said it had signed a sale deed with Tal Dai-ichi Life for the Queensland company's life-insurance arm. The terms remained the same: a sale of $725 million that results in about $600 million to be handed back to shareholders.

The nature of how investors get a payout is yet to be decided, but Deutsche Bank analysts predicted that a share buyback would boost earnings per share by 2.9 per cent in fiscal 2019 to 97 cents per share.

Suncorp stock closed down 11c at $15.33.