What can be done about public liability insurance premiums

The Commonwealth regulates the insurance industry. They do this through the Australian Prudential Regulation Authority, the Australian Securities and Investment Commission, and the Australian Competition and Consumer Commission. For example, the Australian Prudential Regulation Authority recently increased the amount of capital that insurance companies need to back their public liability risk. This must lead to higher public liability premiums.

The point is, the Commonwealth has a direct role and direct influence on the insurance market. The Commonwealth has the power to obtain information from insurers to analyse the causes of the current crisis and evaluate the financial impact of any proposed reforms. It’s the Commonwealth’s responsibility to examine the conduct of insurers towards consumers and deal with unconscionable tactics.

They can and should monitor the insurance industry for any sign of anti-competitive practices. If necessary the insurance industry should be subject to price monitoring.

On public liability, the New South Wales Government welcomes the Commonwealth’s belated acknowledgement of its responsibilities in this area. The Commonwealth Government should come to the national meeting convened by the Assistant Treasurer with some firm proposals. They must take responsibility.

The insurance industry also needs to review its own practices. The industry should ensure current prices are not an over-reaction to the collapse of HIH and September 11. The industry should give rational quotes for public liability insurance, based on the real risks involved.

At the very least, insurers should explain clearly to customers why their individual "risk" circumstances may not be relevant.

In the current market, a good claims history or low level of risk does not seem sufficient to ensure insurance will be either obtainable or affordable. This is extremely frustrating for those community organisations with impeccable records and low risk, many of whom perform socially valuable activities.

The industry should reflect on its broader social responsibilities. They should assist their apparently "unprofitable" customers to find an insurance model that might help to make insurance affordable, such as pooling arrangements with similar organisations.

Insurers must also pass on cost savings they make from any future Commonwealth or State law reforms. Insurers have argued in the past for reforms on cost savings grounds. Windfall gains at the expense of small customers are unacceptable.

The Government is aware of the insurance industry’s claims that stamp duty on insurance policies is contributing to the current problems. The industry’s opposition to taxes is not new and stamp duty is clearly not the cause of recent massive premium increases. However, any merit in the arguments about taxation will be considered as part of the Government’s review of options to tackle public liability insurance problems within NSW.

I am aware some organisations may want the NSW Government simply to subsidise the purchase of insurance. I understand how disappointing it is, particularly to country communities, that events are cancelled due to the inability to obtain insurance.

But I must make this important point: while insurance costs are necessarily factored into levels of public funding for certain community services, direct subsidies for other events and organisations might actually entrench inflated premiums at taxpayers’ expense.