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August 2006 - Tort reforms’ impact on claims high

Tort law reforms, introduced in 2003, have had a dramatic impact on claim rates nationally, according to a report commissioned by the Law Council of Australia.

Insurance trade newsletter Cover Note said the report, National Trends in Personal Injury Litigation: Before and After Ipp, analysed data on trends in personal injury litigation, excluding motor accident and workplace claims. It was written by Prof Ted Wright, director of the Justice Policy Research Centre, University of Newcastle.

The report showed that, post-Ipp, claim rates fell nationally by 60% in 2004-05. The largest changes were NSW, where claims fell 63.2%, Queensland 70.6% and Victoria 81.5%. The report said personal injury claims were stable in Victoria in 1996 to 2001 but Victoria was now the lowest claiming state. Geoff Provis, vice-president of the Law Institute of Victoria, said figures from the Victorian County Court showed public liability lawsuits has dropped from 1,734 in 2002 to 84. There was a total drop in all causes of action for personal injuries from 5,418 to 801. Mr Provis said the reduced claims had created an “unjust windfall” for insurers.

A contrasting viewpoint is highlighted in this issue by Noel MacCarthy, Liberty International Underwriters’ executive vice-president. He told the AILA Queensland Insurance Law Intensive that liability insurance would soon be underpriced.

He rejected calls to wind back tort reform, saying the effects would not be seen until 2008, “and that’s only the effects of the first year”. While tort reform had led to a sizeable decrease in smaller-end losses, they did not add up to a lot in claims dollars.

Tort reform raises interesting issues. Are we in danger of creating a situation where personal injury insurance is no longer required because there is no longer any common law exposure for anything other than very serious injuries? We may develop into a situation where catastrophe level cover is all insureds need to buy. While that is taking things to an extreme, it is worth pondering.

If 80% of claims hare evaporated, routine slips and trips are no longer subject to claims. Many insureds may opt for high deductibles and self insure minor claims that fall beneath the deductible, although they may reach the thresholds imposed by tort reform. That should see the cost of cover decrease accordingly.

I suspect part of the reason for decreased claims may be a decrease in the number of injuries and incidents of damage as a consequence of the debate on tort reform. The debate has alerted people to potential risks, so we have become more concerned about safety and duty of care.

If we’re all becoming more conscious of risk, if fewer people are being injured and property damage is reduced, that’s positive. In Tasmania, for example, CTP claims have reduced. Safer, more risk-aware driving is tipped as the reason.

Perhaps, too, we are taking greater responsibility for ourselves and moving away from blame-and-claim responses.

And there’s yet another consequence. A report by The Australian’s legal affairs writer Chris Merritt, quoting the Queensland Law Society journal, Proctor, comments on the effects for law firms. He says “tort reform is shrinking the economic base of firms in country towns and regional centres”.

More than 35% of respondents to a QLS-commissioned survey of 334 firms reported a drop in profit because of tort reform. The survey said the negative impact was greatest in Rockhampton and Mackay, where 62.5% of firms said tort reform had hurt their businesses. In Brisbane, 37.3% of respondents reported a negative impact.

We need to question the premise behind tort reform. Originally the primary reason was to ensure coverage was available for community groups and sporting organisations having difficulty obtaining insurance at affordable premiums. But the concept has gone well beyond that.

On another note, thank you to Louise Hanly who is leaving McPhail & Partners after many wonderful years of support for AILA as national secretariat. AILA wishes Louise all the best for the future. McPhails & Partners will continue as AILA’s secretariat.

Steve Knight
AILA President



PO Box 2011 FOREST HILL VIC 3131
1300 699 140 office@aila.com.au



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