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Wednesday, 22 August 2001
Page: 29997


Mr ADAMS (4:47 PM) —The honourable member for Corangamite spoke about Lloyd's of London, and I was trying to make the point that there seemed to have been two operations going on: an outer Lloyd's of London which, I think, affected his constituency a bit like mine, and an inner city Lloyd's of London where, I think, the money came from the colonies, and colonisation was still working a few years ago when that occurred. I would much sooner still have that money in my own electorate than back in London.

The General Insurance Reform Bill 2001 introduces a new prudential regulatory regime for the general insurance industry, seeking to harmonise Australia's insurance regulatory system with international standards. The bill gives the Australian Prudential Regulation Authority new powers to set prudential standards for general insurers and sets new capital adequacy standards. I understand that there is an amendment to the bill to require the APRA's powers to exempt an insurer from requirements to appoint an actuary under section 47. This is a disallowable standard. This bill is the final act of a consultative process to reform the prudential regulation of the insurance industry commenced in 1995—and, of course, this government failed miserably to progress that in a proper way. The General Insurance Reform Bill 2001, of itself, is not dramatic; its major impact is that it gives the APRA the power to set prudential standards. The APRA have, in turn, established a series of prudential standards covering capital adequacy, risk management and valuation of liabilities. In examining these standards and the bill itself, the major changes that have occurred since the HIH collapse relate to the timetable of implementation.

I want to use this discussion on general insurance to look at the question of public liability insurance. It is a question that has been haunting me since the beginning of the year when I discovered that for some reason public liability insurance premiums had suddenly increased several thousand per cent, putting both public and community events, and the use of local buildings for such events, out of the reach of hundreds of small and medium groups.

In my own electorate of Lyons, thousands of such groups have been made very vulnerable, including groups such as girls netball teams, the local market at Epping, different classes held in halls, young groups of people meeting in halls, Lions Club meetings, quilting groups—10 women sitting around a table in a hall once a week—senior citizens clubs, card evenings, line dancing, community meetings and all sorts of others. I was asked to provide public liability cover when meeting constituents in a local government hall.

This appears to stem from a decision by Tasmanian councils, some 29 in all, to join a local government self-insurance mutual liability scheme. Because of the mutuality clause in this, the member councils are obliged to collectively agree to indemnify one another against loss. This has sent shock waves through the system. Up until now councils covered public liability in their own buildings under a general policy, and the rent of those buildings reflected a small amount for this. Someone who paid $10 for a hall for a couple of hours to have a meeting once a week has now been asked to pay $800 up front to cover some form of public liability consideration.

According to the insurance company concerned, the councils have panicked. The company says that, while mutuality delivers benefits, it also imposes obligations, and that members have to conduct their business in a way which does not place any unnecessary burden on other members. What it does not address is the enormous burden it also places on the community. Again, according to this company, the insurance cover spreads the risk between the individual member councils, councils collectively as a mutual, and the reinsurance underwriters. What was not said was that all councils in Tasmania were to be covered under this policy, and that it was to be linked with councils in Victoria, and probably other states. Thus the risks being covered were not just Tasmanian risks, but those of more populated states, therefore covering potentially greater risks. Then I learnt that it was not just Tasmanian councils that had had a hike in premiums. Many of Tasmania's small businesses, country shows, sporting events and even theme parks had suddenly been hit with the same problem. It came out of the blue, and to all intents and purposes with no warning. These businesses are now having to close or remove anything that might move that creates a greater risk.

I have done a fair bit of research on this and cannot find any huge claim or greater risk that has suddenly appeared on the horizon. The only thing that appears to have occurred was the collapse of HIH Insurance. What exactly is going on? Have the risks changed or have the profits dwindled for some reason? I have received a press release from the Insurance Council of Australia. In part it said:

The biggest impact on public liability and professional indemnity premiums in recent years has been a sharp increase in the cost of claims.

The ICA executive director, Alan Mason, has been reported as saying:

... from every dollar collected for public liability and professional indemnity insurance, more than 100 percent was paid in claims. And this loss ratio does not include other costs to insurers, such as overheads and expenses, when underwriting public liability and professional indemnity risks.

Then he went on to say:

... in the current climate where industry profitability was an important objective for shareholders and policyholders, premiums were far more responsive to meet present and predicted future levels of claims, and also reflected the high risk exposures.

I ask here how these risk assessments are calculated and where the information comes from to arrive at this collective risk. The ordinary mortals who just happen to want to use a hall for a meeting, a few girls throwing a basketball around or some of our senior citizens getting together over a cup of tea and a bit of knitting, do not seem to be catered for in this scenario. Alan Mason said:

The cost of insurance is only a reflection of our increasingly litigious society and the approach of the courts ...

The latest Australian Prudential Regulation Authority figures show that professional indemnity insurance premiums rose by about 18 per cent between 1998 and 2000, while the overall cost of claims increased by around 82 per cent. In the same period, the cost of pubic liability premiums rose by about 14 per cent, with the cost of claims increasing by 52.5 per cent. Alan Mason said that this does not necessarily reflect an increase in the number of claims made— rather, an increase in the average cost of each claim. Then he pointed to another aspect that is indeed a new problem. He said that the legal system is seeking damages beyond the country's ability to pay, and our court awards are becoming more generous because of the public expectation that people can win the lottery. What they do not understand is that the more the individual gets in one of these payouts, the more his or her community loses in community activity.

Mr Mason said that public liability and professional indemnity insurance are not simple products like those that cover property damage, such as motor car insurance. Claims can take many years to develop and be notified, and many more years to proceed through the legal system. There are often complicated legal, contractual and medical issues, and the claims or allegations are often denied or countered by the person or business against whom the claim is made. Medical and technological advances and inflation often boost the cost of claims. Whilst public liability and professional indemnity claims are not as frequent as car or house claims, they can be much larger, often running into tens of millions of dollars. Insurers need to create an adequate pool to meet the cost of these losses. It has been revealed that, according to the latest general insurance industry survey conducted by Ord Minnett, these classes of insurance are expected to continue to lose money in the coming year. According to the ICA, in some cases risk management expertise could be available to help policyholders reduce their risk. For example, when taking out a public liability policy, people should talk to their insurer about what they can do to reduce potential risks, as this may give them savings on their premiums. How does this help the small embroidery group, the fitness class or the netball club?

It should be the councils that should be assessing their risk, considering ways by which risk can be minimised or developing public education to help the public understand the sorts of risks that are acceptable and the ones that are not and that risk taking should be part of an individual's personal responsibility. However, there would be a need to change the legislation to allow some sort of cap linked to personal responsibilities in these sorts of cases.

Another aspect of this is the ability of one company to take control of all the public risk situation in local government that does not seem to allow any element of competition to enter. Tasmania does not fare well under the normal elements of competition policy because of its small population, but here we might have scored a bit under this situation, if more than one company were involved, because of the potentially lesser risk. However, there may be other elements that are not apparent that would prevent this, but, even so, a 3,000 or 4,000 per cent hike in fees is quite extraordinary in any situation and I have to question its fairness. I have been working on this for a while and believe that there is a desperate need for a change to the legislation in this area. This bill has a number of aspects that may be able to assist, but I will be looking for changes in some of the legal aspects of public liability and looking at the amount of payments being made and where the main responsibilities lie.

A report to the New South Wales parliament's Public Bodies Review Committee looked at the public liabilities of local councils. This had some interesting findings. Under the common law rules and principles of negligence, a council can be sued for damage caused by a negligent performance of its activities or by a negligent failure to act when it is under a duty to act. Public liability insurance is intended to cover a council's legal liability to the general public for bodily injury and property damage caused by a negligent act or omission by the council, its councillors, employees or agents and the council's liability as an owner of premises leased to the general public for bodily injury caused as a result of the state of the premises or its surrounds.

I would say that this does not cover a person's liability if they get onto a wall where there are no stairs or normal access points and jump off into a canal with little water in it and break their neck—but apparently it does. So, if you climb up to the top of a quarry where there is fence with a sign on it that says, `Dangerous Spot', but you still get over the fence and fall down the face of the quarry, you can sue. I believe we have to come to a conclusion that, if you get over the fence and fall down, you have to accept some responsibility. If the fence is not there, I think you certainly have a reasonable case, but now you can sue even if the fence is there. Somewhere along the line we have lost personal responsibility for our actions. If there was a hole in a wall and someone just walked through it and jumped, then there may be an argument of negligence on behalf of the owner of the wall.

One of the submissions to this inquiry stated that it is difficult to nominate any other industry which owes a duty of care to such a wide spectrum of the general public and which can be held accountable at law where there is a breach of that duty of care. Councils appear to be more directly accountable to the public than any other level of government. They are not bad insurance risks but, because of the problems they face and the far reaching duties they are associated with, they have a greater exposure to claims. The trouble is that it can be argued that in recent years litigation by lawyers who advertise their services on a no win, no pay basis has significantly increased. Even if a lawyer loses a case against a council and is up for costs, invariably councils are unable to recover them because the plaintiffs have no funds.

While this new legal activity might allow more people to try to gain justice, it also means that the community ends up paying even for the unreasonable claims through an increase in premiums. This catch-22 situation is becoming more and more difficult and needs to be addressed. The HIH collapse has given us an opportunity to review a lot of these sorts of problems and, although this bill cannot address much of what I have been saying, it does give us an opportunity to look at the other aspects of both the insurance and legal systems, so that governments at both state and federal level can do something about it.

I will be seeking to move a private members motion on this issue so that the problem can be further considered. But, in the meantime, I am concerned that this government has done little, and shown little interest, in the handling of the reform of general insurance and has failed to deal with HIH properly. Once again, the people of Australia end up paying for the mistakes of a tardy and disinterested government. Let us hope that it can address the problems of public liability with a little bit more fairness. I support the bill.