May 2005 - Too early to gauge reforms' effects
The effects of tort reform legislation introduced by state governments continue to be very topical. While there is anecdotal evidence of a lessening of litigation and it is clear the market has moved in broad terms, it is still too early to predict the effects of the reforms on the industry.
There is a concern that if the industry moves too soon with rate reductions, and there is not support in the court system for implementing the intention of the legislative changes, insurers may see another downward spiral.
Discipline and structure are required, not change for the sake of gaining market- share. Access to data is the key to being able to accurately demonstrate the effect of tort reforms.
Victorian finance minister John Lenders has said he is satisfied the Australian Prudential Regulation Authority's (APRA) national claims and policy database report, to be released soon, will provide a detailed breakdown of the effects of tort reform on community sectors, for example non-profit organisations and sporting groups, following his calls for more detailed monitoring of the industry. Insurance trade newsletter Cover Note says the report, which will analyse public liability and professional indemnity data collected from the industry, will identify trends in those classes in greater depth than the Australian Competition & Consumer Commission (ACCC) monitoring report released in February.
Federal assistant treasurer Mal Brough has also called for continued monitoring and wants more time for insurers to gauge the effects of state and territory reforms. "We are seeing benefits start to flow to consumers through lower premiums, and access to medical services that were being threatened through unavailable and unaffordable insurance cover," he told Cover Note. But he said the ACCC would continue to monitor premiums for a further three years and report at 12-monthly intervals. Mr Brough said the ACCC price monitoring report and the APRA report would ensure a wider availability of pertinent data so premiums better reflected real risks.
He said stability in the industry was the key to putting downward pressure on premiums. Mr Brough warned that a failure to maintain reforms would expose the community to the risk of higher premiums and less availability of insurance by recreating factors that contributed to the 2001 insurance crisis. "Three years ago the industry was in crisis following a rapid increase in litigation, unsustainably low premium pricing and the subsequent collapse of HIH. It triggered a succession of events which saw premiums spiral out of control, if insurance was available at all, and a dramatic loss of confidence in what is an important industry to the Australian economy," Mr Brough said. There was a need to continue monitoring and working with the industry to ensure all benefits of reform flowed on to the community. "The benefits were always expected to be long term and we have to be patient and cautious. The industry has a role to play in restoring confidence, but loose talk of winding back reform can only unsettle the industry and it will be Australian small businesses, community groups and consumers that would ultimately pay the price in higher premiums," he said.
APRA has released two new prudential standards for general insurers, covering business continuity management (BCM) and a discussion paper, draft prudential standards and guidance notes outlining a proposed strengthening of the prudential supervision of general insurance in the areas of risk and financial management. Both documents are available at www.apra.gov.au.
This year is the 45th anniversary of AIDA, the international insurance law association of which AILA is a member. To commemorate the event, the Presidential Council has asked all member associations to host academic activities.
Members are also invited to participate in AIDA's scientific research prize, sponsored by AIDA and Aon Re Global. One of AIDA's primary objectives is to promote the scientific research of insurance, which explains the creation of this global prize. The deadline for entries is March 30, 2006.
The XII International Insurance Law Conference will be in Buenos Aires in 2006. Member associations have been asked to prepare responses to a questionnaire on the influence of scientific and technological innovations on individual insurance, to be submitted by October 30, 2005. I will respond on AILA's behalf, but if members wish to submit their own responses, please email me for a copy of the questionnaire (email@example.com).
If any member wishes to offer suggestions that could form part of the answers to the questionnaire I would be happy to receive them, and they would naturally be acknowledged in the submission.
Geoff Masel Lecture
Melbourne - May 19 (evening seminar)
Hobart - May 20 (afternoon seminar)
Adelaide - May 25 (breakfast seminar)
Perth - May 26 (breakfast seminar)
Sydney - June 16 (evening seminar)
Brisbane - June 17 (morning tea seminar)