The Minister for Small Business, Joe Hockey, has suggested that the state and federal governemnts look at a national compensation scheme, such as that in New Zealand, as a means of reducing crippling insurance premiums for public liability.
The insurance industry says it is running these policies at a loss. Mr Hockey has revealed how business, sporting and charitable organisations have been hit with premium increases this year of up to 400 per cent. In some cases it was threatening profitability or threatening activities undertaken by sporting and charitable organisations.
Mr Hockey laid the blame squarely at what he called greedy lawyers and asked whay was it that someone injured by falling off a chair at home bore the loss, but the same person falling off a chair in a shop would sue. Mr Hockey said he would like to see a scheme that capped damages.
Mr Hockey has won some support from the insurance industry – particularly capping pay-outs. He has won support from NSW Premier Bob Carr. However, lawyer associations have condemned his attack and suggested that the HIH collapse and other factors in the insurance industry have contributed to the higher premiums.
However, the industry is correct to point to a growing number of claims and increases in pay-outs. It seems likely that as insurance coverage has grown, courts have been keener to find negligence and award damages, though there have been some notable exeptions in the NSW Court of Appeal recently.
Since Mr Hockey’s statement, a more measured response to the insurance-premium blow-out has come from the Assistant Treasurer, Senator Helen Coonan. Senator Coonan rightly pointed to difficulties over funding the New Zealand scheme. It has an unfunded liability of $4.9 billion, which has to be paid for by the general public one way or the other. Further, she said that capping damages would not necessarily lower premiums.
There are problems with the existing set-up. Its arbitrariness is unfair. An injured party who is lucky enough to be able to point to some insured person or corporation who has just the slightest degree of fault will get damages on a high scale. A person injured in an accident in their own home or where no-one can be blamed however slightly gets no damages. The common-law system plays a winner-takes-all game. Coupled with the legal profession’s new found capacity to advertise and charge on a no-win, no-fee basis, it makes for increased litigiousness.
There might be other ways.
The trouble with Mr Hockey’s proposal is that it is directed almost solely at cutting premiums for business. It might be better to concentrate on looking at betters ways of compensating people other than large lump-sum payments after years of legal wrangling. Moreover, Mr Hockey’s suggestions seem to be restricted to public-liability insurance, while medical, workplace and road negligence cases are not considered.
There are great dangers in any suggestion to remove common-law rights in a wholesale way and replacing them with an administrative scheme, but steps can be taken to provide alternatives. It might also be helpful to encourage more loss-of-income insurance by individuals so that injury does not become so catastrophic that they search for someone to sue, however ill-founded. No-fault systems (still insurance based) with lower damages might encourage lower settlements. Given the low threshold for a finding of negligence anyway, it might be advantageous for insurers to take the liability issue out of the equation in turn for capped damages, so anyone injured in a given shopping centre, on council property, playing with a sports club or whatever would be covered for any injury, but not on the generous common-law scale, provided they abandoned the common-law claim. Other no-frills public liability insurance could be investigated.
And there should be greater focus on preventing injuries in public places in the first place.