The issue of public liability

The past year has seen a significant increase in public liability insurance premiums for many businesses and community based events. The causes of the public liability insurance crisis are varied and interrelated.

Issues relating to the growing number of large damages awards, the advertising practices by certain solicitors practising in the personal injury field, a community that is becoming more litigious and the collapse of HIH and the events of September 11 in America are being debated in the public arena.

Groups of individuals such as the insurance companies and the Plaintiff Lawyers Association are pointing the finger at each other and laying blame.

Meanwhile many community groups, non-profit organisations and sporting groups are closing and ceasing their operations because they cannot afford the premiums being charged.

A range of organisations has been affected including RSL clubs, bed and breakfasts, shows, shopping centres, pony clubs, fun parks, surf lifesaving clubs, in fact, practically anything involving volunteer organisations.

Premiums for organisations such as Queensland Women’s Amateur Sports Council have jumped from $900 to $9,000, and for La Boite Theatre $12,900 to $42,000. The Queensland Rugby Union faces an increase of 300%. Small groups such as the Association of Relatives and Friends of the Mentally Ill have gone from approximately $500 to $1,300, for a community group that has an annual turnover of about $5,000. Blue Light discos run by the Queensland Police Service were being jeopardised by a 700% increase in premiums until the Queensland Police Department stepped in with the money.

It is reported that while Australian insurers made a collective profit of $1.4 billion in 2000 across all sectors, boosted by good investment returns, the public liability sector collectively lost $539 million – its fourth consecutive year of recording a loss.

Also that public liability insurance has not been profitable for about a decade, a situation exacerbated recently by the effects of the terrorist activities of September 11 and the collapse of HIH Insurance.

It appears that the operations and practices of the insurance industry over the past decade have played some part.

Reinsurance costs have risen, particularly with overseas reinsurers facing their own problems, and many companies had to raise premiums or lose higher risk customers to stay in business. The concurrent global economic downturn meant lower returns on investments and, thus, a reduction in profits. Some companies merged with others or folded completely.

Australian Prudential Regulation Authority (APRA) figures indicate that the number of claims lodged with public liability insurers has increased from 55,000 in 1998 to 88,000 in 2000 – a 60% jump. Premiums rose by only around 14% in that same period. Although the industry collected $880 million in public liability premiums in 2000, it paid out $1.18 billion in claims (representing a $299 million loss).

An insurance industry spokesman has regarded the events of the past year as a ‘necessary wake-up call’ where slack underwriting practices of recent years – such as insurers reducing prices to attract customers without properly checking risks – backfired.