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Re-rating storm brews for RAC
The West Australian

The next four weeks will be crucial for determining insurance bills for the State's motorists and businesses, according to the RAC's new head of insurance.

In his first interview in the role, RAC Insurance chief executive John Stringer told _WestBusiness _that the mutual, which controls about a third of WA's motor insurance market, is about to embark on its annual reinsurance negotiations.

It comes in the wake of the world's two biggest re-insurers declaring last week that Australia's spate of natural disasters had forced them to "re-rate" the country on international reinsurance markets, triggering premium jumps of up to 50 per cent.

Mr Stringer said that WA's isolation from the east coast floods was likely to limit increases to well below that, but that it would have an impact.

"Our premiums have jumped significantly over the last three years," he said. "We expect they will increase again this year, but not to anywhere near the same extent which might have happened last year and in 2011."

National majors including Insurance Australia Group say their reinsurance premiums jumped from 6¢ to about 8¢ in a premium dollar in 2011, but had plateaued until recently.

RAC's reinsurance bill jumped by about $7 million to $28.5 million last year. Mr Stringer said it was a reminder of the toll a spate of natural disasters could have on business from higher premiums, as the costs had to be passed on to policyholders in full.

Last year's tornado in Morley and surrounds was the RAC's second-worst housing insurance loss event in its history, he said.

While the RAC doesn't face the same scrutiny as listed insurers, its mutual structure and smaller scale meant it had less capital than the major national groups, and Mr Stringer said that forced the RAC to continually cut costs.

"Competiveness in the market place is predicated on cost structures both from a claims and operating expenses perspective," he said. "That is always going to be a challenge for us."

While the strength of RAC's "brand" gave it some scope to have slightly higher premiums, Mr Stringer said a continual focus on cutting costs was a must, especially with groups such as Wesfarmers' Coles supermarkets bulking up to relaunch its insurance products.

The former AAMI manager said one of RAC's main aims was to control its car repair costs, by potentially negotiating with a smaller number of repairers who would handle greater volumes.

This was in part to stave off a threat from other insurers who are establishing their own repair shops.

"We are supporting the Western Australian repair industry far more than anyone else, merely because of our size," he said.

"On top of that some of our competitors . . . are looking for an advantage in the repair cycle (by) repairing their own cars in their own owned shops. That is taking work away from the local market, but we are committed to supporting the local market."