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Guiding Principles

1.4 The primary objects (section 1.3) of the Act relating to a premium framework are to:

(a) promote competition and innovation in the setting of premiums

(b) ensure the sustainability and affordability of the scheme and fair market practices

(c) keep premiums affordable by ensuring that the profits realised by insurers do not exceed the amount that is sufficient to underwrite the relevant risk.

1.5 To promote competition and innovation by insurers, the Authority allows risk-based pricing, but this must be done within limits in order to keep premiums affordable. The premium framework recognises that this liability scheme, which is compulsory and privately underwritten, blends risk-based and community-rated approaches to assist with the object of affordability.

1.6 Filed premiums must be adequate and not excessive (under section 2.22(1)(a) of the Act). The Authority will closely scrutinise filed premiums against the objects of the Act and against any range of premiums for transitional policies it has determined under clause 2(3)(c) of Schedule 4 of the Act.

1.7 In aligning with the competition and innovation objects, the Authority recognises that insurers will pursue their own particular business objectives that will be reflected as an integral part of each insurer’s pricing strategy. On this basis, technical (actuarial) pricing will not be considered in isolation and an explanation by insurers is encouraged for non-technical pricing considerations, including:

(a) business plans and short, medium and long-term growth strategies

(b) response to pricing by competitors

(c) market segmentation and distribution strategies

(d) innovation and efficiencies in their business model.

1.8 The Authority will take into account the objects of the Act when considering, in aggregate, both qualitative and quantitative explanations when reviewing insurer filings.