The government yesterday urged insurance companies to show restraint in rate increases even as the sector griped about the problems that have devastated insurers’ capital reserves and reduced their profitability. Jacking up premiums in order to recoup losses could boomerang on the sector, Economy and Finance Minister Nikos Christodoulakis told participants at the Association of Greek Insurance Companies annual shareholders’ meeting. «Unjustified rate increases could result in the market shrinking,» he said, suggesting a more effective strategy would be to improve the quality of services and products while keeping premiums at competitive levels. The call to cap price increases comes as rising oil prices and bad weather appear likely to send the February inflation rate soaring again after a slowdown in January consumer prices to 3.1 percent. The government last week called on public utilities to cap tariff increases which should not exceed the inflation rate. Water utility EYDAP yesterday said tariff increases effective April 1 will range from 2.5 percent for the majority of residential consumers to 3.4 percent for the remaining users. The insurance sector has taken a battering in recent years as a result of the September 11 attacks in the USA, floods in Europe, hikes in reinsurance rates and the prolonged decline on stock markets worldwide, Dimitris Kontominas, the outgoing head of the association, said. «Premiums in Greece are falling short of claims,» he said. General insurance premium income rose by 15 percent last year against a meager 1.2 percent increase in life insurance. The situation is getting worse as courts award bigger payouts than in the past to claimants. On top of that, the sector has yet to benefit from synergies of costs, despite mergers, with operational costs exceeding premium income. «There is a need for courageous measures and for the institutional framework to be improved, especially the tax and social structures, despite the encouraging measures taken in 2002,» he said. Kontominas said the gloom and doom notwithstanding, the outlook for the sector continued to be bright. «Based on 2001 statistics, the Greek insurance premium-to-GDP ratio stood at 2.3 percent compared with the average EU ratio of 9.1 percent. Insurers’ investments to GDP ratio at 4.37 percent is less than a third of the average EU level of 54.5 percent,» he said. Responding to the sector’s call for an independent regulatory body, Christodoulakis said such an institution is in the pipeline. The proposed regulatory body will be empowered to sanction and even fine errant insurers. Deputy Labor Minister Rovertos Spyropoulos in turn invited insurance companies to a dialogue with the government on the setting up of private insurance pension funds.