It is of great to concern to us all that increases in public liability insurance premiums are causing hardship to many organisations in our community. Public events are being cancelled, events that are integral to maintaining the community spirit so important to the Australian way of life. We all value the diversity, vibrancy and
general good fun such events bring to our communities. In a world where globalisation and corporate dominance threatens the unique cultural fabric of our society, these events are crucial in maintaining social interaction within communities.
However, there are other community values that are just as important to us. These include the values of fairness, responsibility and compassion for the disadvantaged. These are values that define us as Australians – giving everyone a fair go and treating others with dignity and respect. And above all, ensuring that our actions are
responsible and do not cause pain or suffering to anybody else.
The common law system has been upholding these values in Australia for more than 200 years and forms the foundation of our basic democratic rights. It ensures that we as Australians live in a safe society, free from oppression and the unwanted interference of others.
The risk of litigation provides an incentive to businesses to provide safe workplaces and products. It is because of our legal system that food is safe to eat, children’s toys are safe to play with, cars are safe to drive and people can go to work every day without the threat of injury or death.
Would you feel comfortable letting your kids go on a roller coaster ride at a fun park if the people responsible for maintaining the ride were not accountable if something went wrong? In giving up the common law right to hold people responsible for their negligent actions, we give up the security of living in a safe society where
corporations, councils and governments are accountable when they hurt us or our children.
The selective reporting of personal injury cases in the media gives a false impression of the common law system. People cannot sue for millions of dollars if injured because of their own clumsiness. It simply does not happen. Injury victims must surmount numerous hurdles if they are to receive compensation. Firstly, they must find a
lawyer willing to take on their case. In most circumstances, plaintiffs that claim compensation have been injured so badly they cannot work and are therefore unable to afford a lawyer. They must therefore look for a lawyer willing to represent them on what is commonly known as a ‘no win, no fee’ agreement, as legal aid does not
exist in Australia for civil cases.
A ‘no win, no fee’ agreement simply means that the injured person will not be required to pay up front legal fees, and will not pay his or her lawyer for the preparation and running of the case unless the matter is successful. This means that if the case loses, the lawyer does not get paid. It therefore follows that a lawyer
will not take a case that is likely to lose. If a person does get injured and it is their own fault, even if they manage to convince a lawyer to act for them, the court will not award compensation. Damages are only payable where an injury is proved to be caused by the negligence or fault of someone else. By providing legal advice to
people without billing them for it until they can afford to pay, the law is able to provide remedies to people injured through negligence who may otherwise not have been able to afford access to the system.
The biggest problem we face in this debate is the gross misconception that the common law, a legal system that has been in existence in this country for over 200 years, is responsible for the sudden skyrocketing of insurance premiums. This assumption is particularly absurd given data released by the Productivity Commission showing
that litigation in Australia has actually declined by 4.1 percent per annum since 1997. Public liability insurance premiums have increased by such a drastic amount in such a short period of time because two of the biggest events to hit the Australian insurance industry in decades took place over the past 18 months - the collapse of HIH
and the terrorist attacks of September 11.
The collapse of HIH is particularly important as it was the biggest public liability insurer in Australia and, as is becoming increasingly clear from the HIH Royal Commission, the conduct of their management left a lot to be desired. HIH accepted risk and set premiums that became a benchmark for other insurers. Insurers competed
fiercely with HIH and premium prices dropped to unsustainable levels. When HIH collapsed, and a number of other major players merged, this competition for business suddenly disappeared and insurers are now free to charge whatever they like to make up for the poor risk management decisions they made previously in their bid to win
business. Reduced competition also gives them the freedom to be more choosy when it comes to assessing the risks they are prepared to underwrite, cutting many community groups and not-for-profit organisations out in the process. This has all been exacerbated by September 11, as global reinsurance costs have now skyrocketed with the
knock-on effect of causing insurance premiums to rise all around the world.
So if litigation is not the cause of insurance premiums rising, why are governments and the Insurance Council of Australia talking about the introduction of caps and thresholds to restrict compensation entitlements? For one thing, in the face of mounting public pressure to find a solution, lawyers are an easy target, and caps and
thresholds are perceived as a quick fix. Another is that governments make a lot of tax revenue out of public liability insurance premiums. The NSW Government stands to make $50 million this year through stamp duty and other taxes on public liability premiums. On the other hand, governments make no money out of the compensation awarded
to negligently injured people. The motivation of governments in finding solutions must be looked at in the light of these budgetary realities.
A threshold keeps small compensation claims from being made by setting a minimum level of compensation. If the minimum threshold is, for example, $36,000, then claims below this amount will not be awarded. Thresholds only serve to punish the most disadvantaged in our society as it is they who usually have the smallest claims. The
unemployed, children, the elderly and the disabled are not able to claim income loss in most compensation cases which drastically reduces the amount they can claim. These people are then less likely to meet the minimum claims threshold. The costs of their recuperation will then fall on to the taxpayer through the social security
system, even if the injury was blatantly and irrefutably the fault of somebody else. Taxpayers end up paying and the party responsible gets off without penalty.
Until global reinsurance costs go down, competition in the Australian insurance market recovers from the HIH collapse and mergers, and the insurance cycle returns to its peak position, insurance premiums will remain high. Solutions must be found for community events to carry on but the answer does not lie in reducing compensation
entitlements. We know from experience both in Australia and overseas that a response of that type does not reduce premiums. It may pander to the tabloid mentality that portrays compensation for injuries as some kind of good fortune, but the real impact will be on the helpless and the disadvantaged, the injured and disabled through the
suburbs and regional centres of Australia.
The negligently injured will be put through even more pain and suffering. The burden on taxpayers will increase by adding to the social security bill. And society will become less just and less compassionate.
Is this the best solution for our community?