Public Liability: Slipping and Falling or Regaining Balance?

Transcription

1 Public Liability: Slipping and Falling or Regaining Balance? Paper given to AFR Insurance Summit 2002 by Ron Heinrich, President, Law Council of Australia 1 It is a commonplace that the year 2002 has been an eventful one for public liability. To take one example, in late October the Law Council observed that there had been eight reports and legislative initiatives released or made in relation to liability issues over the last five weeks. 2 What is more open for debate is whether the deterioration in availability and affordability of public liability insurance is near its lowest point, or to put it more metaphorically: whether, after stumbling, balance is being regained? The Law Council is of the view that the public liability insurance debate has two sides to it: the legal system and its shortcomings; and the insurance market and its shortcomings. In respect of the legal system, to whatever extent compensation law was out of balance (that is out of step with community expectations by being too favourable to accident victims), this is now well and truly in the process of being corrected. By the end of the current process of law reform following from the Review of the Law of Negligence by the Negligence Review Panel chaired by the Hon Justice Ipp, any imbalance in favour of accident victims that there may have been will be a thing of the past. However, the Law Council has consistently maintained that insurance market issues are the predominant causes for the significant premium price increases and the lack of capacity in the public liability market. I would say that the pricing and availability of public liability insurance is still reaching towards a point where insurance companies consider it appropriate for the risk. 1 2 Paper distributed at the summit, with subsequent revisions to reflect the speech as delivered. Law Council of Australia, Media Release, 23 October The reports and legislative initiatives were: release of report of the Australian Health Ministers' Advisory Council Legal Process Reform Group (18 September 2002); release of Second Insurance Industry Market Pricing Review by the Australian Competition and Consumer Commission (mid- September); release of the final report of the Negligence Review Panel (2 October 2002); lower house of Victorian parliament passes package of insurance reforms (9 October 2002); Northern Territory tort reform legislation introduced into parliament (17 October 2002); release of the Senate Economics Committee s A Review of Public Liability and Professional Indemnity Insurance (22 October 2002); NSW government announces its second stage of tort reform legislation and the Prime Minister announces medical indemnity package (both on 23 October 2002).

2 2 The escalation in premiums in this part of the insurance cycle has attempted to bring the relationship between insurance companies risk and profitability back into balance. However, I am concerned that this relationship of risk and profitability is likely to remain out of balance in the short term, and that the underlying issues of the insurance market are not being sufficiently addressed. This conference, the AFR Insurance Summit 2002, is an opportunity to review what has been happening, and where we may be going. I congratulate the Australian Financial Review for gathering together so many speakers to this event, and hope that you find it rewarding and stimulating. What I will address today is: an overview of events this year; where we have come from and where we now are, in relation to both insurance issues and the common law; a discussion of tort law reform measures; and some common misconceptions. Before proceeding, I should say something about my own perspective and the perspective of the Law Council. Perspective The Law Council of Australia is the peak national representative body of the Australian legal profession. The Law Council was established in It is the federal organisation representing approximately 36,000 Australian lawyers, through their representative Bar Associations and Law Societies (the constituent bodies of the Law Council). The constituent bodies of the Law Council are, in alphabetical order: ACT Bar Association; Bar Association of Queensland; Law Institute of Victoria; Law Society of the ACT; Law Society of NSW; Law Society of the Northern Territory; Law Society of South Australia; Law Society of Tasmania;

3 3 Law Society of Western Australia; NSW Bar Association; Queensland Law Society; and the Victorian Bar. The Law Council speaks for the Australian legal profession on the legal aspects of national and international issues, on federal law and on the operation of federal courts and tribunals. It works for the improvement of the law and of the administration of justice. The Law Council represents, through the representative Law Societies and Bar Associations, lawyers who act both for claimants, and for insurers and defendants (including governments and not-for-profit organisations). The Law Council is the most inclusive, on both geographical and professional bases, of all Australian legal professional organisations. The Law Council and the constituent bodies have been very active this year, in terms of responding to government inquiries and lobbying government on law reform. I would particularly like to note my predecessor as President of the Law Council, Tony Abbott, in responding to the many calls upon the Law Council s resources this year. In addition to the Law Council structure, lawyers have also contributed to the debate through other bodies such as the Australian Plaintiff Lawyers Association. In terms of my own perspective, I have worked in insurance law for a defendants legal firm, Tress Cocks & Maddox, for over three decades now. In that time I have acted for a number of insurers and medical indemnity providers both on personal injury litigation, and in relation to their strategic commercial legal issues. So I have a particular involvement with the issues being discussed today, and a personal sense of how things have developed over time. An overview of this year This year has seen an intense focus on personal injury law, giving rise to a great opportunity for addressing anomalies in the law, and for gauging the community s level of satisfaction or otherwise with the legal system in this area. One can see how eventful this year has been by looking at the accompanying overheads headed. What you can see from the overheads is that the debate became more focused and detailed during the year. In January, the Commonwealth Minister for Small Business and Tourism, Joe Hockey MP, set off debate by trenchantly criticizing the legal system. He put forward the point of view, which has quite a deal of academic support, that the present common law based system of compensation had got it so wrong that the only answer was to try again by replacing it with a no-fault compensation system.

4 4 A no-fault system might yet arise as a model to deal with the costs of long-term care for the catastrophically injured. But there would now seem to be no prospect for the foreseeable future of the common law being entirely replaced by a no-fault system. As the debate has developed, it is focusing on reforms to adjust the common law in relation to personal injuries in specific areas. Before we can judge the outcomes of this year, we need to have a sense of history. Where have we come from? The insurance cycle This year we have had another Austen Powers film to remind us of an earlier era of seemingly unstoppable partying in a consequence free environment, to borrow a line from the first film in that series. However, some of the people who have been calling this year (with success) for tort law reform do not seem to remember that in the mid-1990s they were enjoying what we can now see were unsustainably low insurance premiums. Unhelpful and insensitive though this comment may seem, the current increases in insurance premiums are in large part the inevitable hangover from the mid-90s soft phase of the insurance cycle. As Trowbridge Consulting have observed: Insurance markets are renowned for their cyclical nature, with extended periods (say three to five years) of stable or premium reducing rates, followed by a shorter period (usually two or three years) of rapidly increasing premiums. 3 In the mid-1990s the insurance market was considerably more competitive than it is now. This changed in the late-90s with industry mergers. Between 1998 and 1999, there was a decline in the number of insurers in the Australian market from, from 172 to And in the mid-90s, HIH was an aggressive price leader. HIH held about a fifth of the public liability insurance market when it collapsed in early We can now see that premium prices had been at unsustainably low levels. A good indicator of this can be seen from where premium levels for liability insurance were, on average, when we entered this calendar year. JP Morgan & Deloitte Touche Tohmatsu/Trowbridge Consulting concluded that after adjusting for CPI, average premium rates are only now [ie at the end of the 2001 calendar year] back up to 1993 levels. 5 The authors noted, and the Law Council agrees, that this indicated historical underpricing of premiums Trowbridge Consulting, Public Liability Insurance: Analysis for Meeting of Ministers 27 March 2002 at 4. Data extracted from Australian Prudential Regulation Authority, Annual Reports, 1996 to Australian Insurance: 2002 Interim Insurance Survey, page 14. Ibid.

5 5 I appreciate that average premium rates do not tell the whole story. Individual policy-holders have experienced much steeper increases, and even unavailability of coverage. I am also not suggesting that it would be a good idea if another HIH style competitor was introduced into the market, for example by establishing a government owned insurer to take on the role of insurer of last resort. Governments that have withdrawn from the insurance industry will be unlikely to want to re-enter it now. The Law Council would also not encourage a solution that, if premiums were deliberately underpriced, merely shifted costs onto taxpayers for an inevitable reckoning at some point in the future. What I am pointing to is that the insurance market is cyclical, and that we are now in the hard part of the cycle. This is important to bear in mind when we consider what will be sustainable solutions. This cycle has, however, been particularly hard in Australia harder than the last hard cycle in the late 1980s. It is interesting to read now the NSW Personal Injury Damages Bill 1990 and its second reading speech. That Bill was an earlier version of the tort law reform which has been adopted this year. The Personal Injury Damages Bill 1990 was not passed, perhaps because the insurance market was softening when the Bill was introduced. What is interesting about the Bill s second reading speech is how contemporary it is. That makes me think that, even though extensive tort law reform has been and is being made this year, we should not think we have seen the end of the insurance cycle. The Law Council considers that the current situation in relation to the affordability and availability of public liability insurance and medical indemnity insurance, is principally caused by factors unrelated to the legal system. These factors include: loss of capacity by international re-insurers and insurers following a series of natural disasters and the tragedy of September 11, 2001; the collapse of the HIH Insurance Group (which the Law Council notes had about a fifth the public liability market); the substantial fall in the value of worldwide equities markets over the last eighteen months (estimated to be over $US100bn); and the financial strictures imposed by the Australian Prudential Regulation Authority (APRA) of new Prudential standards, in particular the minimum capital requirements. All these factors contribute to, and make it possible to realise a desire of the remaining insurers, who are effectively monopoly or near-monopoly providers to a captive market, to make profits or recoup prior years' losses due to underpricing in prior periods.

6 6 Unless we want to be resigned to going through the roller coaster ride of the insurance cycle again, and in your case hearing the same speech from the then President of the Law Council in ten or twelve years time, then we need longer term measures that go to how the insurance market operates. Where have we come from? The legal system When you hear a lawyer talk about the problems of the insurance market, it looks like the speaker is attempting to avoid blame. One sometimes got the sense in the early parts of the public liability debate this year, that whoever you listened to the problems lay elsewhere, and it could be with a number of parties: lawyers, claimants, judges, insurers, Al Qaeda, government, the market anyone and everyone except whomever was speaking at the time. The insurance issues being discussed at this conference are genuinely complex and inter-related, and everyone whom I ve referred to is involved in one way or another. But I believe the debate has matured, and players are coming to grips with their roles and the issues, for example: Lawyers have been forced to look at how they do business this year, and had changes imposed on them in relation to fees, advertising and court processes. Insurers are currently undergoing a bench-marking study of claims management practices by the Productivity Commission, which is scheduled to report by the end of the year, as well as there being regular market monitoring by the ACCC. Several state governments have reduced stamp duty on certain insurance premiums. In relation to lawyers, it is fair to say that the legal profession has largely been engaged in a defensive campaign this year to ensure that amendments to the law are justified, according both to principle and the practical benefits that the amendments are said to lead to. However, as law reform outcomes have become clearer, the legal profession is realising the opportunities that this presents for improvements to the legal system. Improvements, of course, come from a realisation of shortcomings. What have been the shortcomings of the legal system? Possible shortcomings are: a litigation explosion; growth in judge-made law; and disproportionate costs and inefficiency. The Law Council would say that a sudden increase in litigation has not been a shortcoming of the legal system. It is clear from court statistics that there has not been an explosion in litigation in recent times, although there has been a steady increase over the last five to ten years. Trowbridge Consulting

7 7 expressed the following views on the issue of court filing statistics for public liability and related categories: It is difficult to draw strong conclusions from these statistics given the extent of the limitations on the data. We can, however, observe that most courts have had an increase in the number of writs lodged over the period that we have examined. 7 Overall, therefore, the court statistics appear to support a view that there has been a steady increase in public liability insurance bodily injury claims over the last five to ten years. There is no evidence of an explosion of litigation in recent years. 8 I also note there has been nearly a twofold increase in the number of public liability policies on issue. The Australian Competition and Consumer Commission (ACCC) has concluded that rises in the cost of claims has not been the trigger for insurance premium increases, and in doing so they point to what may be another possible shortcoming of the legal system: Tort law developments may have raised costs over the past twenty years, but in of themselves are not obviously a source of inefficiency or a root cause for the current insurance crisis, whether directly by increasing costs, or indirectly by raising uncertainty and thereby adding to the difficulties of managing the fat and long tailed risks. 9 What the ACCC is pointing to here is the evolutionary and flexible nature of the common law. It is said that judges, by extending liability and filling out the heads of damages which are available under the broad principle of putting the injured person back into the position that he or she would have been in if the accident had not occurred, 10 have been increasing claim costs over the last two decades. For our purposes today, let s accept that claim costs have been increasing for the last two decades and that the law is, at the very least, permitting this development. 11 The prevailing view now in government would seem to be that this flexibility of the law is a shortcoming. The legal profession would not agree with this assessment, emphasising instead the positive value in being able to address the justice of an individual case. But, be that as it may, a major part of tort law reform is to increasingly codify the law, reducing flexibility, and in relation to damages, narrowing the discretionary range of awards of compensation by caps and thresholds. 7 Trowbridge Consulting, Public Liability Insurance: Practical Proposals for Reform at Trowbridge Consulting, Public Liability Insurance: Practical Proposals for Reform at ACCC, Second Insurance Industry Market Pricing Review at See the summary statement of the law in Nominal Defendant v Gardikiotis (1996) 186 CLR 49 at 54 per McHugh J. 11 For example, as there has been a cultural shift in caring for severely injured people from institutions into home environments, the full compensation principle has led to larger awards for future care of such people. This is a case where the legal principles have remained the same, but have produced significantly more expensive outcomes when techniques of care change.

8 8 Another possible shortcoming of the law is disproportionate costs and inefficiency, as compensation funds are in part diverted to a litigation industry. Lawyers are the people who carry the can for this litigation industry, but when one hears statements, which are broadly correct, that half of the cost of smaller claims goes in legal and administration costs, what this refers to is not merely lawyers. The cost also includes: expert witnesses, court fees, private inquiry agents and process servers, and the administrative costs of the insurance companies themselves. To some extent it is inevitable that in claims under say $50,000 that legal and administration and overhead costs will be a significant component there are basic expenses which will be the same regardless of the value of the claim. And it is true that in the over thirty years which I have been in the law, that the legal industry has changed. Indeed the term legal industry would not have been common thirty years ago. In broad terms, significant developments in the legal industry have been: the legal profession has increased in numbers of practitioners; mergers and natural growth have led to the development of large national firms; and work within the profession has become more specialized. These trends have affected personal injury litigation: large national commercial law firms have insurance practices or departments; many previously independent defendants firms have merged either into the national firms or boutique and second tier firms; and a small number of larger plaintiffs firms have developed. Personal injury is of financial interest to the legal industry, although its significance can be overstated. The latest Australian Bureau of Statistics survey indicate that about one in every six dollars that goes to solicitors, and over one in every four dollars that goes to barristers, comes from personal injury law (of which public liability is one part). 12 Of course, the specialization to which I have referred means that some lawyers are much more financially exposed to personal injury than one sixth or one quarter of income. And on the other hand many lawyers are not directly affected by any changes to personal injury law. In fact most lawyers would either not be directly affected, or not significantly so. 12 Australian Bureau of Statistics, Legal Services Industry, Australia (published 2000) which surveyed the 1998/99 financial year reported that of a total income from legal services to solicitors of $5,827.2m that $966.4m came from personal injury. The corresponding figures for barristers were $837.3m and $234.9m.

9 9 I mentioned earlier responses to shortcomings. Lawyers have positively responded to the issue of disproportionate costs and inefficiency by promoting measures (which have already been implemented in Queensland with the support of the legal profession) in relation to: restrictions on obtaining legal costs from the other side in smaller claims; and pre-trial procedures which involve mandatory conferencing and exchange of offers before legal proceedings can be commenced. These measures will now be adopted nationally as part of the Negligence Review Panel recommendations. 13 These measures are a good example of how the legal system can be improved without reducing the rights of injured people. To sum up, I would say that the legal system has not been marked by a dramatic escalation in public liability claims (either in terms of numbers or size of claims). However, there has been a steady increase in numbers of claims over the last decade, and there is (even if it is hard to precisely quantify) a trend of growth in the legal industry and the law over the last two decades or more, just as there has been a significant increase in the number of public liability policies on issue. That trend of growth has to be put in perspective. Societies change over time. If claims costs are rising in real terms over a twenty year period, the Law Council is of the view that it should be possible for insurance companies and their clients to adjust to that. A gradual real increase in claims costs over a twenty year period may well be, at least in part, the price of medical and economic advances which have benefited the Australian community. Claims costs will be increased for example by: additional medical expenses due to scientific improvement; and additional economic loss payments (particularly for women, who are more engaged in the paid workforce now than twenty years ago). One feature of the year s debate which has struck me at times is when current claim costs have been compared to comparable figures from the late seventies or early eighties with the implication that the law had got it right then and what was right then is right now. That is not necessarily the case at all, our community has changed considerably in that time in terms of prosperity, education and technology. The legal system has not been the trigger for the current situation in relation to the affordability and availability of public liability insurance. But that does not 13 See recommendations 9 and 45 of the Negligence Review Panel, Review of the Law of Negligence: Final Report.

10 10 obviate the desirability of principled reforms to address longer-term issues in the law and legal process, and it is to tort reform that I now turn. Tort law reform Other speakers at this conference, such as Senator the Hon Helen Coonan, the Commonwealth Minister for Revenue and Assistant Treasurer, and the Hon Bob Debus, Attorney-General for NSW, will be speaking about their legislative programs, and so I will not duplicate their effort. 14 The next phase of tort law reform is implementing the key recommendations of the Review of the Law of Negligence: Final Report (Ipp report). The Law Council understands that there will be, at the very least, nationally consistent approaches to most recommendations. Law reform to implement the commitments made at the Ministerial Meeting on Public Liability Insurance held on 15 November 2002 could be expected to be completed in all states and territories in the first half of next year. Although the Review of the Law of Negligence was given an unrealistic timeframe, the Review has pointed to opportunities for improvements to the legal system. The Law Council wants to see a constructive series of law reforms which will improve the operation of the law and contribute to a more certain and stable insurance market. For this reason, despite great reservations about its terms of reference and timeframes, the LCA made two major submissions to the Review chaired by Justice Ipp, and was asked to appear in person twice before the Negligence Review Panel. The current spike in insurance costs and reduction in insurance availability has arisen because of insurance market factors. Law reform cannot remove these factors and the proper operation of the law should not be lost in trying to reduce premiums. Tort law plays three principal functions: a compensation function for those injured; a deterrent or normative promotion of good standards of safe behaviour; and a corrective justice function. Together these functions establish that the law is about self-responsibility. The responsibility to take care of oneself and the requirement to take responsibility for the consequences of your own actions when those actions cause harm to another person. There should be law reform to improve the operation of the law consistent with underlying principle. The Law Council has maintained that wholesale codification is not necessary or desirable. However, extensive codification will be implemented. The detail of the Law Council s policy on the Ipp 14 On what has been already committed to this year in all the jurisdictions, see the attachment to the Joint Communiqué for the Ministerial Meeting on Public Liability Insurance held on 15 November 2002.

11 11 recommendations is not something I will go through today. If you are interested a table setting out the Law Council s views on each recommendation is available on its website ( I will discuss though the most important of the Negligence Review Panel s recommendations. The Law Council believes that the most valuable reform proposed by the Negligence Review Panel, and which governments have agreed to implement in legislation, is the codification of the reasonable foreseeability test. This test addresses the issue of what levels of risks should one guard against in order to avoid being negligent. The Law Council supports codification of the reasonable foreseeability test, so as to strengthen it, and make sure that negligence standards are in line with community expectations of personal responsibility by excluding liability for risks below a certain level of probability. The Law Council notes that: the proposed reform of the reasonable foreseeability test is intended to make the law acceptable to community expectations, rather than abandoning the common law it reconfirms the common law approach, while making some substantive change to the law; secondly, the change proposed is principled rather than involving a special arrangement for one class of defendants or measures which are simply justified by proposed cost savings. 15 We will not really know whether the law is in balance in relation to the foreseeability issue until courts have had some time to apply the test. One area where I believe the law reforms are out of balance against injured people is in relation to thresholds on access to compensation for non-economic loss (also known as general damages or pain and suffering ). I have already spoken about the legal profession s support for reform of the legal process to reduce legal costs in smaller claims, and encourage less adversarial litigation by mandatory conferencing and exchange of offers. These measures are highly effective in reducing disproportionate expenditure on smaller claims. However, the exclusion of pain and suffering compensation for persons under a threshold (such as a permanent impairment level, or a percentage of the worst case), can effectively end (by making it uncommercial to pursue) a claim for persons whose claims are largely for non-economic loss. The claims I am envisaging are those involving less serious injuries (and so not requiring large medical or future care costs awards), by people who are not in the paid workforce (and so do not have economic loss). I believe the 15 On principled reform see the influential extra-judicial speech given by the Chief Justice of the NSW Supreme Court, which has been subsequently published as an article: JJ Spigelman, Negligence: the Last Outpost of the Welfare State (2002) 76 Australian Law Journal 432.

12 12 community should be concerned about removing the rights of people at all, and particularly in a way which will discriminate against such people as stay-at home parents, retirees, children and the unemployed. The Law Council believes that these issues of balance should be addressed by building on the high level of attention given to personal injury law this year, by keeping it under review, for example by a law reform commission inquiry or even a reconstituted Negligence Review Panel. An important opportunity that a principled approach gives is to address anomalies in the law as between workers compensation, motor vehicle accidents and public liability. The Law Society of NSW has recently published a paper on this. 16 Facts, myths and the future In conclusion, I want to turn to the remaining overheads. What the Law Council sees as four myths of this year- the litigation explosion, dramatic increase in average claims size, a blame and claim culture, and tort law reform as the way to reduce premiums are all in fact not literally true. They are misconceptions. This raises the question squarely of whether we are regaining balance. Any imbalance in favour of accident victims that there may have been will be dispelled by the Negligence Review Panel s tort law reform agenda. Over time, the community may come to the view that the pendulum has in fact moved too far, particularly in excluding smaller claims for pain and suffering. If the cause of the present public liability insurance crisis is, as the Law Council believes, predominantly insurance market related issues, then we run the risk of continuing to stumble now, or when we next return to a hard insurance market. What I have said so far goes to what the Law Council has consistently said, that law reform alone is not enough. The next question for governments is: do you want to set out an agenda to deal comprehensively with the insurance industry issues? To date, governments have committed to measures including: improving data collection by APRA; the Productivity Commission benchmarking study of claims management practices; market monitoring of insurance premiums by the ACCC; and initiatives to assist not-for-profit organisations to obtain affordable public liability insurance. 16 J Ball, Uniform Tort Law: A fairer system for a fairer result.

13 13 Governments could look, however to the following additional measures, which I offer today as suggestions: extending the insurers code of conduct to cover pricing decisions and renewal of coverage; further relief from the taxation of insurance premiums; phasing in the implementation of new APRA prudential standards, particularly in relation to minimum capital requirements; and a real commitment to raising the claims handling standards and efficiencies of the claims departments of insurance companies. In conclusion, governments are making major changes to tort law which will, despite positive changes, also create an imbalance against accident victims. On the other hand, the insurance market issues may not be sufficiently addressed to make the hoped for lower premium benefits of tort law reform durable. Legislators cannot be modern day Canutes against the insurance cycle, and I urge consideration of the measures I have suggested today. 29 November 2002

14 AFR Insurance Summit Public Liability: Slipping and Falling or Regaining Balance? Friday 29 November 2002 Ron Heinrich President, Law Council of Australia January 2002 Joe Hockey says newly released APRA figures demonstrate there is a explosion in public liability litigation. He attacks legal system lottery delivering unrealistic personal injury awards and calls for the replacement of common law system with a no fault compensation scheme. February Media horror stories on undeserving plaintiffs, stupid decisions and greedy lawyers. March Ministerial Meeting to discuss public liability crisis with consulting actuaries Trowbridge given three weeks to analyse causes. April Heads of Treasury Working Group instructed to provide solutions with Trowbridge given a month to develop reform package. May Second Ministerial Meeting on public liability insurance hears of reform measures in each state with NSW and QLD leading the way. Eminent panel to undertake principled review of negligence law announced. June First stage legislation passed in NSW and QLD. Caps and thresholds on claims and damages introduced in NSW and restrictions on lawyers advertising in personal injuries legislated or announced in most jurisdictions. July Negligence Review Panel chaired by Justice Ipp given two months to rewrite the entire law of negligence. August Governments can t wait the two months and legislative packages announced in SA, WA, ACT. 1

15 September first Ipp Report delivered recommending the wholesale codification of negligence law including the standard of care owed by doctors. September AHMAC Legal Process Reform Group reports and reaches differing conclusions from Ipp on standard of care for doctors. September ACCC Report on insurance pricing confirms that the massive increase in premiums is caused by insurance market factors and not legal system trends. October second Ipp Report further expands proposed codification of negligence law as well as supporting thresholds and caps on claims. October third Ministerial Meeting proposes that officials will examine Ipp Report and recommend policy response to be discussed at fourth Ministerial Meeting in November. November 2002 fourth Ministerial Meeting endorses majority of the Ipp Report recommendations. This will be reported to the December meeting of COAG (Council of Australian Governments). Further issues (including long-term care costs) are referred to April 2003 meeting of Ministerial Meeting. Proportionate liability, and professional standards legislation for non-personal injury claims are to be considered by April 2003 meeting of SCAG/MINCO (Standing Committee of Attorneys-General/Ministerial Council for Corporations). November 2002 NSW Parliament passes Civil Liability (Personal Responsibility) Bill. Other states and territories, and the Commonwealth, to follow with their own legislation to implement the commitment to Ipp recommendations made at the fourth Ministerial Meeting on public liability insurance. 2

16 The Key Myths Myth v Facts That a crisis in insurance has arisen because of an explosion in litigation. That the average size of claims has increased dramatically in the last decade. Australians have adopted a blame and claim culture as the law downgrades personal responsibility. That tort law reform is the way to reduce premiums. Crisis results from a litigation explosion. Facts Current insurance market conditions driven by: insurance market factors; trends in claims costs. (Trowbridge) There is no explosion of litigation in recent years. (Trowbridge) Myth v Facts Insurance Market Factors Facts (cont..) Difficult to draw conclusions from data, but steady increase in public liability claims over last 5-10 years. (Trowbridge) Court filings have actually declined by 4% in (Productivity Commission) Insurance market pricing and profitability are cyclical. Average price rises of 30% in 2001/2002, but: premiums were unrealistically low in previous years; as a percentage of GDP, premiums are back to levels. Insurance Market Factors Myth v Facts Particular (one-off?) pressure affect this year, namely HIH exit, September 11 and APRA requirements. Insurance companies will be in profit next year without any changes. Claim numbers and size of claims are increasing rapidly. Facts Claim numbers grew from 43,000 in 1992/93 to 78,000 in 1999/00, an increase of 81%, but: policy numbers grew from 1.23 million in 1992/93 to 3.01 million in 1999/200, an increase of 145%; (Cumpston Sarjeant) 3

17 Myth v Facts Myth v Facts Facts (cont..) Average public liability settlement by private insurers increased from $7,600 in 1992/93 to $13,200 in 1999/00, but: insurance excesses have increased in same period meaning threshold to make a claim has increased, and with it, average claim costs. (Cumpston Sarjeant) Law encourages blame and claim and downgrades personal responsibility. Facts Law of negligence is founded upon personal responsibility. Myth v Facts Myth v Facts Facts (cont..) A person who causes harm because of their actions is responsible for the damage suffered by the person harmed. Negligent person is responsible - not the taxpayer nor society. Law reform will equal lower premiums. Facts Law reform is generally code for reduced rights. NSW Civil Liability Act will reduce claim costs by between 15% to 30%. (PriceWaterhouseCoopers Cumpston Sarjeant) Myth v Facts Facts (cont..) Logically, this should reduce premiums by 12% to 26%. (PriceWaterhouseCoopers Cumpston Sarjeant) However, if the cause of the crisis is not solely or even predominantly trends in claims but insurance market factors, then the improvements will not be realised. 4