Australian Insurance Research Articles

Effects of the single market on the Austrian insurance industry

The integration of European services markets and the implementation of associated European Union directives open up formerly closed national markets to competition from the Single Market. The purpose of this study is to measure the effects of liberalization on technical efficiency and the productivity development of the insurance industry. As an example we construct efficiency frontiers for the years 1992 through 1999 for the Austrian insurance industry using Data Envelopment Analysis. We use the resulting efficiency scores also to construct a Malmquist productivity index for the transition period. In search for effects from the Single Market, returns to scale, economies of diversification, and distribution channels we relate efficiency and productivity measures to several firm specific characteristics. For this purpose we use unbalanced and balanced panels of individual firm data.

A comparative study of business to consumer electronic commerce within the Australian insurance sector

Electronic commerce is causing fundamental changes in the insurance sector. Inherent opportunities of this innovative sales channel are driving the development of a new customer relationship paradigm, development of new products, pursuit of low cost ‘self service’ strategies, and emergence of ‘virtual brokers’. The Australian insurance sector is well positioned to take advantage of electronic commerce due to the high level of PC penetration, high Internet usage, and extensive broadband infrastructure. The perception is that the Australian insurance sector is meeting these challenges. Surprisingly, despite the emergence of electronic commerce as a ‘hot topic’ in the information technology and insurance sector literature, little empirical research has been reported. Much of the extant literature can be criticized as being too generic and superficial. It is argued that until research is focused on specific aspects of electronic commerce, we will fail to capture meaningful insights. The aim of this research project is to develop a research framework appropriate for electronic commerce, research and to apply it to a specific sector (insurance), in a specific geographical region (Australia), using a specific electronic commerce, medium (Internet), for a specific purpose (business to consumer sale of risk products). The research objective is to discover which Australian insurance companies are using electronic commerce for what. The survey found that of the 21 largest Australian insurance companies only 18 have web sites. These sites are mainly used for promotional purposes and not for directly generating sales. Only six companies offer customer-specific pricing of their products. And of these, only four companies sell any of their products over the Internet. Paradoxically, despite pressing business drivers in the insurance sector and a favourable electronic commerce environment in Australia, these findings demonstrate a significant gap between appreciation of the importance of electronic commerce and realization of commercial potential. Whilst most Australian insurance companies are well aware of the special importance of electronic commerce, many fail to take full advantage. Although further qualitative research is recommended to understand why this is so, it is clear that a significant gap remains between the technical capabilities of electronic commerce and actual practice in the Australian insurance sector.

A Comparative Study of Business to Consumer Electronic Commerce within the Australian Insurance Sector

Electronic commerce is causing fundamental changes in the insurance sector. Inherent opportunities of this innovative sales channel are driving the development of a new customer relationship paradigm, development of new products, pursuit of low cost ‘self service’ strategies, and emergence of ‘virtual brokers’. The Australian insurance sector is well positioned to take advantage of electronic commerce due to the high level of PC penetration, high Internet usage, and extensive broadband infrastructure. The perception is that the Australian insurance sector is meeting these challenges. Surprisingly, despite the emergence of electronic commerce as a ‘hot topic’ in the information technology and insurance sector literature, little empirical research has been reported. Much of the extant literature can be criticized as being too generic and superficial. It is argued that until research is focused on specific aspects of electronic commerce, we will fail to capture meaningful insights. The aim of this research project is to develop a research framework appropriate for electronic commerce, research and to apply it to a specific sector (insurance), in a specific geographical region (Australia), using a specific electronic commerce, medium (Internet), for a specific purpose (business to consumer sale of risk products). The research objective is to discover which Australian insurance companies are using electronic commerce for what. The survey found that of the 21 largest Australian insurance companies only 18 have web sites. These sites are mainly used for promotional purposes and not for directly generating sales. Only six companies offer customer-specific pricing of their products. And of these, only four companies sell any of their products over the Internet. Paradoxically, despite pressing business drivers in the insurance sector and a favourable electronic commerce environment in Australia, these findings demonstrate a significant gap between appreciation of the importance of electronic commerce and realization of commercial potential. Whilst most Australian insurance companies are well aware of the special importance of electronic commerce, many fail to take full advantage. Although further qualitative research is recommended to understand why this is so, it is clear that a significant gap remains between the technical capabilities of electronic commerce and actual practice in the Australian insurance sector.

Earthquake insurance loss assessments for regions of Australia

Following the Newcastle earthquake of December 1989, a consortium of Australian insurance companies commissioned Works Consultancy Services Ltd, New Zealand to undertake earthquake probable maximum loss assessments for the main city centres of Australia. Studies have been completed for the regions around Sydney, Melbourne, Adelaide, Perth and Brisbane. Customised insurance loss assessment models were developed for each study region, with each including specific analytical models for geography, seismicity, ground conditions, patterns of building construction, and insurance company exposures. The analysis model includes earthquake insurance loss versus shaking intensity relationships derived from Australian and international data, and takes specific building vulnerabilities into account. Loss assessments target the Probable Maximum Loss in relation to return period.

'Everybody Was "Girls" in the Minds of the Management': The Fight for Equal Pay in the Australian Insurance Industry, 1973-75

The campaign for equal pay marked an important milestone in the transformation of the Australian Insurance Staffs' Federation. Much discussion of equal pay hasfocussed on 'gender solidarity' between male workers and employers, or a conflict of interest between male and female workers. This article argues that the equal pay campaign united male and female insurance workers against their employers on a class basis. The course of the campaign illustrates the benefits that workers gained from uniting in this way. The union itself was not only larger as a result of the campaign, but also commanded more respect from management. This growth, and the respect that accompanied it, came from the involvement of wide layers of members in unprecedentedly militant industrial action. The fact that so many of those members were women, and that the issue which galvanised the union was such a direct challenge to sexist attitudes, meant a transformation in the way in which women were seen both inside the AISF and more generally.

Australian insurers accused of overcharging

A report commissioned by the Australian Medical Association has found that private health insurance companies are overcharging their members and contributing to their own decline. It found that recent 20% increases in premiums far outstripped the amount the not for profit companies are paying out in benefits to members. “Unless the health insurance industry can find a way to curb premium increases they will be left with an increasingly unsaleable product,” said Roger Kilham, an economic consultant and author of the report. The findings come at a crucial …

Proposals for Australian health insurance reforms

Proposals for Australian health insurance reforms

Technology, corporate culture, and the insurance industry: The Australian experience

This paper is based on a detailed analysis of the interactions between introduced information technology and the culture of an insurance corporation in Australia. The paper identifies the way that information technology has a hidden impact on communication systems and the technical stocks of knowledge that are required to make a productive organisation work. Through these impacts, the introduction of information technology into insurance industry operations directly impacts on the culture of the organisation, i.e., the way in which the organisation ascribes meaning to its participants, and therefore engages them in collective commitment and contribution to the organisation's goals. The paper follows an article that appeared earlier in this journal. “Technology and Organization Culture — The Human Imperative in Integrating New Technology into Organization Design” (Vol. 10, pp. 233–253), and applies the more general perspective introduced earlier to the specific case of technological change in the Australian insurance industry. What the paper shows are dangers that can be avoided. Whilst short-term profitability can be achieved by technological means, the planning of change to internal information systems must also pay due attention to the “hidden” social dimensions, or longer-term organisational atrophy is likely to follow. The social dimensions requiring attention include control vs. autonomy, surveillance vs. encouragement of goal achievement, horizons of career expectation vs. closed horizons of de-skilling, and integration of relations between staff and their customer environment with the organisational system vs. alienation of customer relations by system dominance. Implied in all of those social alternatives is the need to pay attention to the often unexamined social assumptions of introducing efficient technological systems.

Underwriting strategy in a competitive insurance environment

In recent times the Australian insurance market, particularly the Liability section of it, has been characterized by violent changes in premium rate. For a number of years premium rates declined to a point where the market, on average, was underwriting at a considerable loss. This trend was reversed by a sequence of large increases in premium rates to the point where, on average, substantial profits were probably being made. During these fluctuations in premium rates the various operators in the market appeared to act in a similar manner; generally, these individual operators followed ‘the market’ as its average premium rates declined and then increased. From the viewpoint of rational product pricing, this cyclical behaviour of premium rates is peculiar. It raises questions as to 1. what ‘the market’ was attempting to achieve by such pricing; 2. what individual insurers were attempting to achieve in following the market. The present paper investigates the appropriate response of an individual insurer to movements in market premium rates. It is assumed that the management objective of this insurer is maximization of expected discounted profit arising between the present and some planning horizon. Price-elasticity of demand for the insurance produce is taken into account. Section 5 provides an explicit formula for the response of optimal pricing policy to changes in market premium rates. Several theorems are developed there indicating the response of this optimal policy to changes in various parameters. The same section provides a verbal interpretation of those theorems. It is found that optimal strategies do not follow what might be thought the obvious rules. In particular, it is not the case that profitability is best served by following the market during a period of premium rate depression. The relation between the market's behaviour and optimal response of an individual insurer is a complex one. It depends upon various factors, including 1. the predicted time which will elapse before a return of market rates to profitability; 2. the price-elasticity of demand for the insurance product under consideration; 3. the rate of return required on the capital supporting the insurance operation. Each of these features is illustrated in the numerical examples of Section 7. In particular, it is seen that the optimal strategy may well involve underwriting for significant profit margins at times when the average market premium rate is well short of breaking even. On the other hand, conditions can arise in which the optimal premium rating strategy will indicate loss leading in the near future. As a very broad generalization, this may be the case when the current average market rate lies below the break-even rate, but is expected to return to substantial profitability in the very near future. The phrases ‘substantial profitability’ and ‘very near future’ are both operative in this generalization (see Section 7.5). One of the numerical examples demonstrates that optimal strategies will not involve loss leaders, irrespective of the degree of competition from the market, if the demand function for the insurance product assumes certain forms. These particular forms are not unrealistic. It follows that some market research on the shape of the demand function may assist an insurer seeking to determine a suitable underwriting strategy. In fact, some sections toward the end of the paper point out that there are other factors, and particularly taxation considerations (Section 9.1), which need to be considered before an optimal strategy involving loss leading be adopted. Again as a broad generalization, it may be said that these considerations tend to militate against loss leading. In summary then, it appears that the longer term profitability of an insurer will only comparatively rarely be best served by underwriting for deliberate losses. Section 10 gives details of a small survey of Australian underwriters. These underwriters have stated the manner in which they would respond, in terms of pitching their rates, to a particular set of circumstances in a competitive market. These responses are compared with the optimal response.

Women at work: a case study of the insurance industry

This article reports the results of a survey of women employed in the Australian insurance industry. Three main issues are discussed: attitudes to work, experience at work and the role of the trade union in the workplace.

Portfolio selection by Austrian insurance companies

Ausgehend von einem modifizierten Modell vonParkin (1970) wird versucht, das Anlageverhalten der osterreichischen Vertragsversicherungen okonometrisch zu erfassen. In diesem Modell wird das gewunschte Portefeuille abhangig von den erwarteten Ertragsraten der einzelnen Aktiva gemacht. Um diesen Ansatz auf Daten anwenden zu konnen, sind Annahmen uber den Zusammenhang von tatsachlichem und gewunschtem Portefeuille sowie uber die Erwartungsbildung notwendig. In dieser Arbeit wurden der Stockanpassungsmechanismus und der marginale Anpassungsmechanismus sowie unitare und rationale Erwartungen naher untersucht. Die Anwendung dieser Modelle auf Daten der osterreichischen Versicherungswirtschaft im Zeitraum 1973 bis 1982 zeigt, das der marginale Anpassungsmechanismus besser geeignet ist, die Enge der heimischen Finanzmarkte wiederzugeben, und das unitare Erwartungen rationalen vorzuziehen sind. Im Gegensatz zu Wertpapieren und Forderungen, die zueinander Substitute sind, herrscht bei den Einlagen das Transaktionsmotiv vor, sodas fur diese Position das Portfoliomodell wenig geeignet erscheint. Es ist jedoch nicht auszuschliesen, das die Ergebnisse stark von institutionellen Gegebenheiten beeinflust worden sind.

Psychotherapy and health insurance.

The Australian health insurance industry has been critical of psychiatry. The data on patterns of claims which have been the focus for some of their concerns are reviewed. The evidence on the efficacy of psychotherapy is also reviewed. Psychotherapy has been shown to be an effective treatment for persons with incapacitating neurotic and personality disorders, a treatment too important to be endangered by dissent over health insurance payments. Proposals for a peer review process for long term psychotherapy are mooted in the expectation that agreement between the health insurance industry and psychiatry would benefit those patients in need of psychotherapy.

Economies of Scale in the Australian General Insurance Industry

This paper finds very strong evidence of economies of scale for a sample of 143 private sector companies from the 1979–80 Insurance Commissioner's Report.

Returns to Scale in the Australian Life Insurance Industry

This paper seeks evidence of economies of scale for superannuation, ordinary and total business of a sample of 38 Australian insurance companies. It was motivated by the work of Rutledge and Tuckwell, but in contrast to their results, significant evidence, of economies is found.

Rate Control and Government Competition in Australian Non-Life Insurance: Comment

The Australian market is greatly influenced by private bureaus, and is free from antitrust laws, solvency supervision, or state licensing of agents and brokers. Substantial areas are subject to govemment rate control, but on close examination the effectiveness of these controls is seen to depend largely on competition within the private sector of the market and from state funds. Political and other factors have inhibited the operation of the state funds and they have not achieved significant market shares in all lines, nor adopted particularly aggressive rate policies. Reforms are suggested which should improve their performance. In Australia, for many years state governments have attempted to influence the non-life insurance market by a variety of rate controls and the operations of government owned insurance carriers. This has occurred in a market in which an Australia-wide rating bureau, the Australian Council of Fire, Accident and Marine Underwriters has played a dominant role, unhampered by antitrust action. The purpose of t-his article is to describe how these government policies have worked in practice, to assess their effectiveness and to recommend changes. There is no attempt to discuss broader questions, such as the overall economic performance of the industry in relation to its structure Garry G. Pursell, Ph.D., is Senior Lecturer in Economics in Monash University in Melbourne, Australia. Dr. Pursell spent the academic year 1959-60 in London, studying the London insurance market. In 1965-66, he visited a number of educational centers in the United States where insurance education is featured. This paper was submitted in April, 1966. The research on which this article is based comes from part of an unpublished Ph.D. thesis by the writer entitled The Development of NonLife Insurance in Australia, Australian National University, Canberra, 1964. I am grateful to Professor Robert C. Goshay, University of California, Berkeley, for helpful comments. and market conduct or the effects of other government policies, such as taxes. However, a few remarks on some of these matters are made below by way of introduc-

Women and Trade Unions: An Attitudinal Survey

This paper reports some of the findings of a questionnaire survey of 379 female members of the Australian Insurance Employees' Union (AIEU). The specific areas covered are general attitudes to trade unions and to joining and participating in the AIEU, womens' priorities for the AIEU and the perceived role of their union in work-related problems and womens' issues.

Symposium: Women and Industrial Relations: Introduction: Women and Industrial Relations: A Neglected Area of Research

In October 1982, after I had agreed to edit this symposium, I wrote to 22 women I knew to be either active or interested in the industrial relations system in New Zealand, asking them to consider submitting an article. Notice of the symposium also appeared in the December 1982 issue of the journal. Eighteen months later we print 3 of the 6 articles submitted for the symposium. Helen Cook adopts a Marxist perspective on the development of political consciousness among childcare workers and the establishment of the Early Childhood Workers Union. Cathy Wylie's article is an anthropologist's view of shop floor industrial relations at the Gear freezing works, Petone, in 1975 when women had begun to take on jobs which had hitherto been male preserves. Gerard Griffin and John Benson take a statistical look at the attitudes of women insurance workers in the Australian Insurance Employees Union.

Australian Non‐Life Insurance since 1909*

Australian Non‐Life Insurance since 1909*

Rate Control and Government Competition in Australian Non-Life Insurance

Rate Control and Government Competition in Australian Non-Life Insurance