Public liability and personal responsibility

Wendy Fulwood operates a horse-riding school in Baldivis, 40km south of Perth. It’s a classic Australian small business. With 15 horses Wendy has offered local children a trail ride through the Serpentine River delta since she started the business with some hard-earned savings 10 years ago. This may all be about to end.

Just before Christmas Wendy received a letter from her insurance company increasing her public liability premium from $1990 in 2001 to $16,390 for 2002. That is an increase of over 700 per cent. When challenged the insurer cited a raft of reasons from the September 11 attacks to the collapse of HIH.

It’s a lot of horse rides to make up the $14,000 premium rise, but Wendy’s story is similar hundreds of others across Australia.

From the Big Banana ($39,000 to $140,000) to the Big Day Out (600 per cent increase) small businesses are facing crushing premiums. And the issue will only get worse as renewal notices go out closer to June 30.

Small business accounts for around 97 per cent of the 1.1 million businesses in Australia, along with almost half of the private sector jobs. As such, I believe public liability insurance is looming as the most significant threat to the viability of small business this year.

There is a range of reasons behind these big increases. Some can be remedied, some not.

The HIH collapse took a major writer of risk business out of the market. Many in the insurance industry would claim HIH’s premiums were unrealistic as the company scrambled for market share. It was also known to insure businesses that no one else would touch.

Second, September 11 sent shock waves through the global insurance community and dislocated the world market for reinsurance – the market where insurers lay off their risk with other insurers. Conservative estimates are that the global reinsurance market has suffered losses in excess of $20 billion since the terrorist attacks.

But neither of these events explain why businesses like the Muskerry Moto Park at Heathcote has to shut its doors because it cannot get insurance.

Clearly, the enormous increase in claims and the creation of a ‘sue them for free’ legal culture has done nothing to contain the problem.

Figures from the Australian Prudential Regulation Authority show public liability claims across Australia increased from 55,000 in 1998 to 88,000 in 2000. Moreover, insurers in 2000 collected $300 million less in premiums than they paid out in claims with a similar shortfall in previous years. Profiteering insurance companies are not the villains here.

At the same time as these increases, some states were relaxing rules allowing law firms to advertise their services. With the creation of the "no win, no fee" personal injury market our justice system for individuals has been turned into a legal system for lawyers.

Similar stories in professional indemnity and medical indemnity insurance are common.

Australia cannot afford the American culture of ‘sue first, ask questions later’.

My parliamentary colleague, Senator Helen Coonan, is holding a national summit later this month that aims to help the states solve the public liability crises. Issues that might be discussed are no-fault accident compensation schemes, much like in New Zealand. Capping payouts, as some have suggested, is a limited solution. Public liability claims have ballooned in number but not size.

Governments can do all they want to minimise risk through better work practices but ultimately Australians want to be active, preferably outdoors.

We do not want litigation to make us a country where the riskiest thing we do all day is switch on the PlayStation after work.

Ultimately, there is something wrong with our legal system when falling off a chair at home is an accident, yet falling off a chair in a shopping mall is an opportunity to sue for millions. In other words, personal responsibility in life does not end when we walk out the front gate at home.

We need to accept that some accidents do happen. But closing down small businesses like Wendy Fulwood’s horse riding school is an accident we must avoid.