The issue of public liability

The past year has seen a significant increase in public liability insurance premiums for many businesses and community based events. The causes of the public liability insurance crisis are varied and interrelated.

Issues relating to the growing number of large damages awards, the advertising practices by certain solicitors practising in the personal injury field, a community that is becoming more litigious and the collapse of HIH and the events of September 11 in America are being debated in the public arena.

Groups of individuals such as the insurance companies and the Plaintiff Lawyers Association are pointing the finger at each other and laying blame.

Meanwhile many community groups, non-profit organisations and sporting groups are closing and ceasing their operations because they cannot afford the premiums being charged.

A range of organisations has been affected including RSL clubs, bed and breakfasts, shows, shopping centres, pony clubs, fun parks, surf lifesaving clubs, in fact, practically anything involving volunteer organisations.

Premiums for organisations such as Queensland Women’s Amateur Sports Council have jumped from $900 to $9,000, and for La Boite Theatre $12,900 to $42,000. The Queensland Rugby Union faces an increase of 300%. Small groups such as the Association of Relatives and Friends of the Mentally Ill have gone from approximately $500 to $1,300, for a community group that has an annual turnover of about $5,000. Blue Light discos run by the Queensland Police Service were being jeopardised by a 700% increase in premiums until the Queensland Police Department stepped in with the money.

It is reported that while Australian insurers made a collective profit of $1.4 billion in 2000 across all sectors, boosted by good investment returns, the public liability sector collectively lost $539 million – its fourth consecutive year of recording a loss.

Also that public liability insurance has not been profitable for about a decade, a situation exacerbated recently by the effects of the terrorist activities of September 11 and the collapse of HIH Insurance.

It appears that the operations and practices of the insurance industry over the past decade have played some part.

Reinsurance costs have risen, particularly with overseas reinsurers facing their own problems, and many companies had to raise premiums or lose higher risk customers to stay in business. The concurrent global economic downturn meant lower returns on investments and, thus, a reduction in profits. Some companies merged with others or folded completely.

Australian Prudential Regulation Authority (APRA) figures indicate that the number of claims lodged with public liability insurers has increased from 55,000 in 1998 to 88,000 in 2000 – a 60% jump. Premiums rose by only around 14% in that same period. Although the industry collected $880 million in public liability premiums in 2000, it paid out $1.18 billion in claims (representing a $299 million loss).

An insurance industry spokesman has regarded the events of the past year as a ‘necessary wake-up call’ where slack underwriting practices of recent years – such as insurers reducing prices to attract customers without properly checking risks – backfired.

Increasing insurance costs have been attributed by many in the community, including business groups and insurers, and by politicians, to our increasing willingness to sue for damages for injuries suffered outside the home. There is a perception that new rules allowing greater advertising by the legal profession have encouraged litigation, and that some ‘high-flying’ legal firms have used the media to encourage class actions and to tout ‘no-win-no-fee’ services.

The legal profession has hit back and has argued that solicitors do not accept cases that lack any merit. They have stated that there is no evidence of a significant rise in the number or size of personal injury claims and that the increase in premiums is more likely to be the result of the consequences of terrorist attacks and the collapse of HIH Insurance.

The Queensland Attorney-General has commented that compensation awarded by Queensland courts was generally less than in southern states and rarely exceeded $100,000. That was because claims were usually determined by a judge rather than by a jury.

In January Joe Hockey MP, suggested that reform of the present common law compensation framework and replacing it with a national scheme may reduce pressure on public liability insurers of large, often unpredictable, court-awarded damages. At that time, he suggested consideration of a scheme similar to that operating in New Zealand. However, it should be noted that this scheme has resulted in the New Zealand Government facing an unfunded liability of $4.9 billion.

The Queensland Government has put a task force together to look at this insurance crisis. The result of the report was released last week. The main recommendation was that further investigation of the feasibility of introducing a group purchasing arrangement for the not-for-profit community sector be undertaken and a call for the government to immediately call for expressions of interest from community groups who wished to participate.

I would encourage community groups to at least investigate this option to see if the bulk purchase as a group, for insurance cover, could be done cheaper than by trying as individual groups.

However much more needs to be done and quickly. Daily some small community group is stopping its activities for fear of liability because they can’t afford insurance. It is imperative that governments state and federal look at the justification for insurance companies to increase premiums often by 700% for covering groups who have never made a claim. A proper risk assessment needs to be done for each group, not a blanket insurance hike for all groups whether they have claimed or not.

Secondly an immediate stop must be put in place for ad hoc advertising by legal firms specialising in personal injury claims. I have spoken with representatives from the Plaintiff Lawyers Association some of whom do agree with a much reduced form of advertising such as yellow pages only.

Thirdly it may be necessary to cap payments as is done in Workers Compensation payments.

A good starting point for a model for a National Compensation Sheme could be the Queensland Workers Compensation scheme. However, such a scheme needs diligent supervision and auditing procedures.

In 1996 when the Coalition came to power the debt on the scheme was 400 million. The government totally revamped the scheme and had to reduce a considerable portion of the debt by an injection of funds from consolidated revenue. The fund is now however continuing to operate in the black.

If these matters are not pursued immediately then many of our volunteer community groups will cease to function and the community will be the poorer for it.

While some of the issues are complex, action does need to be taken now, not some indeterminate date in the future.