Background. IAAust Interest in Issues. Outline of Submission. Public Liability Product. Public Liability Product

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1 Background Institute of Actuaries of Australia Submission to the Ministerial Meeting on Public Liability March 2002 RA Buchanan Ministerial meeting 27 March 2002 foreshadowed in February 2002 announced 1 March 2002 submissions deadline 15 March 2002 deadline extended to 19 March 2002 Submission outline by Accident Compensation Committee of General Insurance Practice Committee written by Bob Buchanan Presentation summary of submission plus discussion of subsequent developments Outline of Submission Executive Summary IAAust Interest in Issues Public Liability Product and Market Current Issues in Public Arena Drivers of Current Crisis Common Law IAAust Interest in Issues nature of Institute statutory role of actuaries in general insurance submission intended to provide balanced view actuaries uniquely placed Public Liability Product part of broader sources of benefit social security, Medicare workers compensation, CTP medical indemnity professional indemnity health insurance personal accident product/property related Public Liability Product compensation provided by Common Law (Tort Law) insurance protects against cost of paying compensation voluntary cover broad cover of perils subject to exclusions claims occurring basis covers property damage and personal injury 1

2 Public Liability Market many insurers sold through intermediaries often packaged with other covers householders business insurance competitive cyclic Current Issues in Public Arena main public concerns availability of coverage premium increases insurer failure impact on community activities Current Issues in Public Arena Drivers of Current Crisis underlying problems system differences jurisdiction differences fault basis adversarial approach system delays unpredictable experience lack of safety incentives poor claim management lack of data increasing cost exposure frequency claim size increasing uncertainty lack of good data withdrawal of covered perils reinsurance cost and availability Drivers of Current Crisis increasing cost exposure frequency claim size increasing uncertainty lack of good data withdrawal of covered perils reinsurance cost and availability Common Law tort basis liability restitution deterrence monetary compensation finality 2

3 Common Law impact of insurance real defendant is insurer availability of funds deep pocket syndrome dilution of deterrence paradox Common Law impact of insurance real defendant is insurer availability of funds deep pocket syndrome dilution of deterrence paradox benefits utilisation rate lump sums vs periodic benefits delivery responsiveness predictability efficiency incentives safety rehabilitation funding claims arising claims reported pay-as-you-go access negligence no-fault strict liability dispute resolution adversarial inquisitorial administrative robustness harmonisation systems jurisdictions transition taxation (not in submission) 3

4 central database details in appendix analysis of data current reform is largely flying blind harmonisation of reforms between States and systems central database details in appendix analysis of data current reform is largely flying blind harmonisation of reforms between States and systems benefits no-fault benefits and compulsory insurance for socially desirable activities and voluntary assumption of obvious risk long-term care on an on-going basis cf tax changes for structured settlements bulk-billing of acute treatment costs better integration with Social Security benefits no-fault benefits and compulsory insurance for socially desirable activities and voluntary assumption of obvious risk long-term care on an on-going basis cf tax changes for structured settlements bulk-billing of acute treatment costs better integration with Social Security caps, thresholds and deductibles not appropriate for demonstrable costs cap on loss of income (proposed) cap on non-economic loss (proposed) reasonable caps unlikely to save much threshold/deductible for non-economic loss (proposed) potential saving is limited care is needed to ensure lasting effect caps, thresholds and deductibles not appropriate for demonstrable costs cap on loss of income (proposed) cap on non-economic loss (proposed) reasonable caps unlikely to save much threshold/deductible for non-economic loss (proposed) potential saving is limited care is needed to ensure lasting effect 4

5 medical assessment eliminate adversarial approach alternate dispute resolution changing standards provide an alternative mechanism (PAYG?) to fund benefits where community standards change between dates of injury and claim proportional liability alternative to joint and several liability not explicit in submission appropriate for commercial liability appropriate for pain and suffering problems when disability is severe could be combined with low-capped or defined no-fault benefits for loss of income reasonable person test of negligence purportedly already the basis difficult to embody in legislation some movement in High Court self-assumption of risk contributory negligence accepted practice test medical indemnity contractual waiver of liability cf our suggestion of no-fault benefits for certain activities exemption for volunteers, etc. policy defence for local government what safety works are affordable extend scope of workers compensation restrictions on lawyers activities/charges insurance market group purchase pooling of risk outside APRA subsidies in critical areas Government Insurance Office price caps Main Points data system dynamics uncertainty random vs systemic incentives 5

6 Main Points data system dynamics uncertainty random vs systemic incentives Institute of Actuaries of Australia Submission to the Ministerial Meeting on Public Liability March 2002 RA Buchanan 6