Yesterday’s conference on public liability insurance saw a lot of finger pointing and blame shifting. But it also saw a number of suggested solutions to the problem – some of which should be treated with a great deal of caution.
The evidence is clear that premiums for public-liability insurance have increased dramatically in the past year. Small business, charity and community groups and sporting organisations have been hit with increases of sometimes more than 100 per cent.
Less clear is the reason for the increases. Insurance companies say that the number and cost of claims has gone up due to increasing litigiousness and lawyers advertising. They also cite the collapse of HIH insurance and the September 11 attacks of the World Trade Center and the Pentagon. This blame throwing has to be taken with a grain of salt. There is little evidence of a sudden upsurge in claims to warrant the sort of premium increases that small organisations are citing. The collapse of HIH has been a factor, but not for the reasons cited by the Insurance industry. HIH was pricing unsustainably low, and now the insurance industry wants to catch up on profits lost in the past.
The crisis is one of a sudden rise in premiums, not a sudden blow-out in the quantity and level of claims. It is a crisis because it affects so many charitable, community and sporting groups which do so much good in society. Small business can pass on the cost of insurance to customers or absorb it – painful as that might be. Community and sporting groups do not have that option. If their premiums rise too high, they simply cease to function, or they put on fewer events. These groups have to insure because if they do not, their volunteers will be personally liable and so the pool of volunteers will dry up.
If the crisis is seen as one of too many public liability claims and limits are placed on them – either by capping damages or excluding certain claims, it will merely create other problems in society – uncompensated injured victims and a more cavalier attitude to safety because there will be fewer penalties in the way of damages or higher premiums or higher no-claim bonuses.
The anecdotal evidence is that an unfair burden is being put the community and sporting groups who say they have precious few in any claims yet are being hit hard.
NSW has talked about capping damages and changing the common law rights. This is a dangerous path. It is too easy to trample on the rights of the innocent injured under the guise of smacking down “greedy lawyers” working on contingency. But lawyers do not take on cases that do not have a reasonable prospect of success because they do not want to work for nothing. And in any event there are signs that the judiciary has taken some notice of the dangers of playing Santa Claus with other people’s money.
There has also been talk of a New Zealand-type scheme of no-fault compensation for every injury. Again a dangerous path because of the expense.
Some suggestions from yesterday’s conference were worthwhile – periodic payments of damages (with appropriate tax relief) and pooling of community and sporting insurance policies to take advantage of economies of scale.
The latter is especially pertinent. The insurance industry – with high overheads and high reinsurance costs – appears to have taken a dislike to lots of small policies with the possibility (however remote) of one or two very large claims. With pooling, these groups might get coverage they can afford. Governments, the insurance industry, the legal profession and these groups should take this up before picking on the victims.