Australian Insurance Law Association Public Liability Insurance: Is There Light At The End Of The Tu

1
Australian Insurance Law AssociationPublic
Liability InsuranceIs There Light At The End Of
The Tunnel?

• Presented by Geoff Atkins
• 17 July 2002

2
The Public Liability Debate

• What we did and what we found
• Assessing the Governments reform proposals
• Comparing with other States
• So what is that light at the end of the tunnel?

3
Stage 1 5 March to 27 March
Commonwealth Treasury
Client
Assess current market situation Identify
causes Outline framework for solutions
Brief
Submissions to Treasury (79) APRA and other
statistics Claim data from five insurers
Reviewed
Presentation to Ministerial Meeting and published
report
Result
4
Stage 2 12 April to 30 May
Heads of Treasuries working group
Client
Practical Proposals for Reform Further evidence
courts and insurers
Brief
More data from five insurers, industry
sample Court data sought from courts Dialogue
with stakeholders Review of further
submissions Iterative development of proposals
with HoTs
Process
Ministerial Meeting 30 May and published report
Result
5
Public Liability - Summary of Findings

• There are two groups of causes of the crisis

• Insurance market crisis
• Short term issue
• Under-pricing during second-half of 1990s
• Severe reaction by insurers
• HIH collapse made it worse
• Other global factors
• Tougher APRA standards
• Insurer appetite is now low

• Increasing cost of claims
• Bodily injury claims only
• Long term issue, not recent
• Appears to be size of claims more than number
• Across the spectrum of claim sizes
• Probably not the same in each state and industry
  segment

• Without both sets of factors we would not have
  the problem we now have.

6
Claims Information From Insurers

• 5 insurers have opened their books
• Represent about 30 of public liability claims
• Numbers and cost of claims finalised 1993 to 2001
• Split by jurisdiction, bodily injury/property
  damage and claim size
• Stratified sample of 260 bodily injury claims
  including payments by head of damage
• A good information base for assessing benefit and
  legal cost restrictions

7
SA Average Cost by Bodily Injury
8
Average Size of Bodily Injury Claims
Approximate Approximate Annual Growth Average
Size 1993 2001 in 2001
Australia 10 34,300 NSW 13 47,200 Victoria 9
25,200 Queensland 12 30,400 South
Australia 8 19,000 Western Australia 6 23,000
NT 5 20,500 Tasmania 9 20,700 ACT 21 53,10
0
1995-2001
Using trend data 95-01
9
What Makes Up The Claim Profile?

• Bodily Injury of cost
• Under 20k 8
• 20K to 100K 29
• 100k to 500k 25
• Over 500k 12
• Property damage 26
• 100

10
Bodily Injury Claims 20k to 100k
27 of BI claims by number 39 of BI claims by
cost
11
Bodily Injury Claims 100k to 500k
5 of BI claims by number 33 of BI claims by cost
12
Bodily Injury Claims Over 500k
0.5 of BI claims by number 16.5 of BI claims by
cost
13
SA District Court Statistics
14
Premiums Rate Index
15
Insurer Profitability
ITR Premium
Year Ending
Accident Year
Premium
16
Availability

• Those principally affected
• Community events
• Sporting events
• Tourism and leisure
• Retail large end
• Local non-government community groups under LG
  umbrella
• View expressed that availability may decrease
  further
• This assessment is qualitative
• Newspaper articles
• Submissions to this forum
• Insurers acknowledgement in interviews
• Brokers advice in interviews

Particularly one offs
17
The Insurance Cycle

• Strong profits

• Market may overshoot

Hard Market (Expensive)

• Risk selection process rejects some activities/
  industries

• Capital enters market

• Competition prices fall

• Incidents arise HIH/ WTC

• Buyers market

• Sellers market

• Insurer demands premium growth

• Capital withdrawn from market

(Cheap) Soft Market

• Insurer demands profitability

• No significant incidents

• Insurer realisation of losses prices begin to
  rise tentatively

• Prices move into free fall may undershoot

18
Conclusions

• There are two contributors to the current crisis
• A long term trend to increasing claims costs
  which means that the community has to pay more
  and more each year for liability insurance
• A short term market crisis
• market correction in pricing very severe
• for certain segments, Availability is a problem

19
The SA Governments Reform Proposals

• 30 May Recommendations Addressed?
• A Targeted tort reform initiatives ?
• B Broad-based tort reform initiatives ?
• C Review of the law of negligence
• D Reform of the legal system
• E Risk management
• F Group insurance Group buying
• and risk pooling
• G Role of insurers
• H Insurance taxes

NB one part of the solution is a package of
legislation
20
Framework of Desirable Outcomes

• Cost reduction
• Cost containment for the future
• Improved certainty and predictability in the
  insurance system ? improves availability
• Changed social and legal attitudes to assumption
  and liability for risk
• National consistency

21
Broad-based Tort Reform General Damages

• Points approach as per motor accidents
• Scale of severity from 1 to 60 points
• Modest threshold
• Reduced MAC benefits under 20 points
• Maximum 240,000, up from 100,000 in MAC
• Motor accidents has worked well since 1987

22
Broad-based Tort Reform General Damages (contd)
23
Broad-based Tort Reform - Other

• Economic loss capped at 2.2 million
• Discount rate 5
• No damages for investment management
• No interest on general damages or future losses
• Limits on gratuitous care
• Permitting structured settlement

24
Targeted Tort Reform

• Criminal offences
• Influence of drugs or alcohol
• Waivers for risky activities
• Protection for occupiers liability
• Good Samaritan protection

25
Interstate Comparisons

• NSW has been leading the change. SA has
• Lower threshold and lower cap for General Damages
• Not targeted legal proceedings or legal costs
• More comprehensive than Queensland (but not an
  Act!)
• Application for SA is to accidents occurring
  after commencement (no retrospectivity)
• Lack of a process or method for national
  consistency

26
So Is That a Light?

• A strong Yes regarding proposed tort reforms
• Gap for community organisations
• No changes to legal processes
• Claims in tort, contract, statute?
• No announcements on commercial arrangements