ACC may be boon for Aussie insurers

Australian insurers are poised to make a $200 million killing if National wins power and goes ahead with an "informal" plan to privatise ACC, a broker's report says.

The report, issued by the Australian broking arm of investment bank Merrill Lynch, said privatisation could unlock $2.1 billion in new premium income, adding an "incremental kick" of $200 million to the industry's after-tax earnings.

Prime candidates for privatisation were the workers' compensation and motor accident accounts.

"Publicly, as best we can identify, and contrary to the statements made by several insurers we have met with in New Zealand, the National Party has made no formal statement on its plans for the ACC," the report by analyst Andrew Kearnan says.

"Informally, however, we understand the National Party has been very clear in saying it will privatise the ACC and we are told there is a well-buried comment on the National Party website suggesting they plan to privatise the market."

In its summary of policies on its website, National says it will "provide choice in accident compensation in the workplace".

Asked for a copy of the party's policy yesterday, a spokesman for National leader John Key said: "I'm sorry but you will have to wait until the policy is released."

The report tips insurers IAG, Sun and QBE to benefit from privatisation.

"However, we hasten to add that investors should not raise their hopes too high. Privatisation of the market is at the whim of the political powers and politics, elections and outcomes that make sense for all stakeholders don't always fall in unison," the report says.

It adds that the ACC scheme leaves limited access to court-based insurance awards, giving insurers "the capacity in theory to price this casualty risk pool more accurately".

The workplace accident account is the most likely to be privatised. In 2007 it reported a profit margin of 40 per cent.

The other main contender would be the motor vehicle account, which showed a 2 per cent loss of $13 million in 2007.

The report notes that average premiums in New Zealand are lower than in Australia, despite providing higher (universal and no-fault) coverage.

The previous National government allowed private insurers to compete from July 1999 in the workers compensation market alongside government insurer @Work.

There were considerable set-up costs, but investments in systems "were of no use" once Labour reversed the privatisation policy, the report says.

However, private insurers did get "a taste for the potential profitability of the system and the relevant infrastructure was put into mothballs in lieu of a similar opportunity arising again".

From its correspondence with insurers, Merrill Lynch concludes that all the major Australian insurers "in the least are likely to seek major stakes in the ACC market if it did privatise".

Mr Key was a top currency trader for Merril Lynch before he entered politics. He worked briefly in its Sydney office in 2001, where he helped to fire 500 staff as part of worldwide retrenchment at the bank.

- © Fairfax NZ News