AUTO INSURANCE IN AUSTRALIA Several overseas companies have been circling the Australian market, but Progessive's entry represents by far the biggest headache for the local companies.Separately, insurance underwriters cited climate change as the most important issue confronting the industry.In South Australia, Third Party Personal insurance from the Motor Accident Commission is included in the licence registration fee for people over 16. A similar scheme applies in Western Australia.In Victoria, Third Party Personal insurance from the Transport Accident Commission is similarly included, through a levy, in the vehicle registration fee.In New South Wales, Compulsory Third Party Insurance (commonly known as CTP Insurance) is a mandatory requirement and each individual car must be insured or the vehicle will not be considered legal. Therefore, a motorist cannot drive the vehicle until it is insured. A 'Green Slip' another name CTP Insurance is commonly known by due to the colour of the pages the form is printed on, must be obtained through one of the seven main insurers in New South Wales.
Profitability collapsed last year after companies such as Suncorp-Metway and Insurance Australia Group had large payouts for a string of natural disasters, including bushfires and heavy storms.
At the same time, the global financial crisis caused earnings from insurers' investment portfolios to collapse, causing a drain on capital reserves.
Home insurance premiums are under the most pressure to rise, with rates projected to jump by about 9 per cent over the next year, according to the latest JPMorgan Deloitte general insurance industry survey.
House insurance premiums increased 10 per cent last year as insurers sought to reverse years of heavy discounting.
Car insurance premium rises are expected to match last year's 5 per cent increase.
The large number of payouts in recent years, including the more than $1 billion paid out in the wake of the Victorian bushfires, had insurers rethinking the cost of cover, said JPMorgan insurance research analyst Siddharth Parameswaran.
''The rate increases that have been pushed through are largely a reflection of re-estimation of how much these events cost and how frequently they are likely to occur,'' said Mr Parameswaran, one of the co-authors of the report.
Natural disaster payouts since 2007 of nearly $4.3 billion are more than twice the 20-year average.
Mr Parameswaran said the price increases marked ''a real turn'' in the insurance cycle after underwriters were locked in a discounting war for most of the past 10 years.
Elsewhere, compulsory third-party car insurance premiums in NSW are expected to increase by 10 per cent, rounding off the second year of double-digit gains, while Queensland motorists will be hardest hit with prices expected to soar by as much as 15 per cent, mostly due to more generous benefits.
While prices are tipped to run up, gains are likely to be tempered by competition in personal insurance, particularly among internet-based companies.
US company Progressive Direct has recently entered the Australian market, looking to snare a slice of the nation's $9 billion car insurance market with internet-only selling.
In Queensland, CTP is a mandatory part of registration for a vehicle. There is choice of insurer but price is government controlled in a tight band.
These state based third party insurance schemes usually cover only personal injury liability. Comprehensive vehicle insurance is sold separately to cover property damage and cover can be for events such as fire, theft, collision and other property damage.
Progressive Direct Insurance Co.  believes there is an opening in Australia's sophisticated insurance landscape for it to explore the online-service motor insurance segment.
Progressive Direct, a unit of U.S.-based Progressive Corp. , opts not to compete directly with established players in the traditional market but to gain a position among proliferating online businesses, said Simon Lindsay, country manager of Progressive Direct in Australia.
This market segment offers room to evolve in Australia, where a high number consumers enjoy the online experience for personal finance, given the country's high broadband penetration, said Lindsay in an interview.
In Australia, two major players -- Insurance Australia Group Ltd.  and Suncorp Metway Insurance Ltd.  -- have 75% of the market share for motor insurance. Nevertheless, Lindsay said smaller players can pursue "small yet compelling" market segments in the country.
A sound regulatory environment and stable market conditions contributed to Progressive Direct's choice of Australia as the first Asia-Pacific country in which to advance its online motor insurance business, said Lindsay. The market dynamic is suitable for international market exploration and for employing the insurer's Internet-based insurance know-how and online segmentation skills.
Progressive Direct Australia's online technology structure is being built up from scratch in Australia, based on skills acquired from parent company in the United States, said Lindsay. The model is designed to attract a growing alternative online market segment, rather than the general mass segment.
Web site technology is important to deliver quality and customer service. Lindsay said online functionality is a driver to attract customers who have not been offered the experience before.
A recent survey of Google found the proportion of people applying for car insurance online has been on the rise in Australia, with 68% applying online and three-quarters using the Internet at the initial research stage. Currently, Lindsay said the trend is to apply online for car insurance quote rather than buying the product or managing the policy online.
In the next five years, Lindsay said the trend for buying and managing online motor insurance will become more popular. Online claims management is still new in the market, according to Lindsay. The aim is to promote effective and efficient applications of the online platform as "A to Z" functions of motor insurance.
In Australia, Lindsay noted traditional motor insurers remain strong in the market, and this is not going to be changed in the short term. These traditional players launched their own online brands to attract new customer segments.
Progressive Direct's market position is "more independent" with online insurance, said Lindsay. The company recognizes a trend of rising online consumerism, hence its move to explore the segment.
In recent years, Australia's nonlife insurance sector has seen new players such as Australia Post and Virgin Money, an affiliate of U.K.-based conglomerate Virgin and supermarket Coles for the launch of car, home and content insurance