What Insurance Crisis - Is There Really One Following The Collapse Of HIH And FAI?

Many commentators have gone out of their way to suggest there was an insurance crisis and that it arose out of increased litigation, more successful claims and higher awarded damages which led to the unaffordability of public, products and professional indemnity insurance. There is no doubt that the liability market was a hyper-competitive one and the premiums were far too low and insurers lacked the discipline to apply or increase deductibles to assist them to manage smaller claims. Approximately 80% of all claims fell below $25,000 leaving 20% of all claims above this figure. Apart from this insurers were taking a hammering over workers compensation and compulsory third party claims now known as MAA matters. The eventual collapse of HIH/FAI and UMP provided insurers with an excuse to obtain government intervention.

There was little, if anything, insurers could do about workers compensation and compulsory third party premiums, given the commercial and political environment at the time. Irrespective the contrary was true for public, products and professional indemnity insurance where cashflow underwriting was rampant with insurers. It was common to hear insurers complaining about a soft market and their inability to do anything about it. Even those who complained continued to cut premiums to attract business as the market spiralled downward. Risk management was a catch cry from the whole of the insurance market with it being seen as a panacea by insurers for their problems. There is evidence which suggests a contradiction in the insurance industry's explanation of the insurance crisis which can be seen in data made available around the time of the implementation of the Civil Liability Act. The IPP Committee was constrained by time with the data only being selectively investigated as the panel did not consider it their job to test the accuracy of perceptions but rather see them as a starting point.

What is known is that when the 1997 year for liability claims was looked at there were 128 claims which were over $1M of which the vast majority were motor vehicle accident claims. What is also of interest is that with regards to the fuelling of the insurance crisis there is also evidence to suggest that in the case of community organisations 96% of them had never had a claim on public liability insurance in the past five years and yet premiums growth following the collapse was exponential and in some cases insurance became difficult or almost impossible to obtain e.g. real estate agents and valuers belong to a comprehensive scheme run by one of Australia's largest brokers in all states but Queensland, yet following the crisis the majority of these businesses found it almost impossible to obtain insurance however some were able to access the London market and secured insurance protection through it. There is no doubt that the court's pre-occupation with trying to find a remedy for everybody and award damages as a result impacted the insurance market, however, while all this was going on both brokers and insurers were doing little to help themselves. In some cases brokers were being savaged because they were accepting commissions from the business underwritten whereas others who charge fees were not so affected. Irrespective insurers did little to help themselves until the HIH/FAI and UMP collapses served to emasculate self absorption and cause them to focus on profitability rather than cashflow.

From the time of the IPP Committee's recommendations through the implementation of the Civil Liability Act 2002 (NSW) and the Civil Liability (Personal Responsibility) Act 2003 (NSW) it is possible to perceive that the government's ultimate goal in relation to negligence was to bring about change which imposed the burden of responsibility on individuals to take care of themselves and others in order to reduce liability and the level of damages awarded. There is now no doubt that where personal responsibility was once averted it is now the cornerstone of this legislation. Voluntary assumption of risk and contributory negligence now play an important part in this area. Although there has been some suggestion that insurance premiums are reducing this is only a recent phenomenon. Insurers have promoted the view that it is better for insureds to take up more of their self-insured retention by way of deductibles as it significantly reduces the overall premium charged. With public, products and professional indemnity, it is now being looked upon as disaster risk cover with insureds managing smaller risks themselves for both personal injury and property damage whereas in the past this was seen as being the insurer's responsibility.