Ladies and Gentlemen.
Firstly, let me say thank you for the invitation to address you today.
The impact of dramatic increases in insurance premiums and the reduced availability of cover over a range of classes in the past year has caused widespread concern for all areas of the Australian community.
What started out as a problem in the public liability market, has quickly spread to be a major issue for all segments of the economy. From small business, to community groups, local governments, the medical profession and the professions more generally, no one has been immune.
Until 2002, few of us realised the importance of insurance for our community.
It has also been a year where the legal system has come under increasing fire for its role in spiralling insurance costs.
With reports that Western Australian councils are paying out $70,000 per week for slip and fall injuries on footpaths and when you can receive $4 million for hitting your head on a sandbank at Bondi beach because of so called inadequate warning, J.R.R Tolkien had it right in the Fellowship of the Ring where he said, "It's a dangerous business going out your front door".
Nearing the end of 2002, I would like to take this opportunity to review the rugged course that insurance has charted over the past year and to consider what might lie ahead for 2003.
In the Beginning
Towards the end of last year and early this year, it became apparent that insurance availability was shaping up as a major issue of community concern.
When the front page of the highest circulating newspaper in New South Wales proclaimed the `death of fun' it had gone beyond concern to an issue which demanded immediate attention by Government.
It was very clear from the outset that this was not an issue in which finger pointing or blame laying was likely to satisfy the public. What was required was national leadership to develop a cooperative and comprehensive response by all levels of Government.
To ensure this occurred, I convened a series of meetings with my State and Territory colleagues to thrash out some concrete solutions to this very difficult issue.
The first meeting was held in Canberra in March of this year. Three meetings in Melbourne, Sydney and Brisbane followed this meeting. Each of these meetings has been marked with a spirit of non-partisan cooperation and agreement to reforms that will deliver significant benefits to the Australian community.
Data Difficulties
The focus of the first meeting was largely to gain an understanding of the problem.
What had happened to suddenly propel insurance premiums to astronomical levels?
Very early on it became apparent that limited data existed to shed light on the causes of premium increases.
Data collections on insurance had previously focused only on aggregate figures required to enable solvency calculations for prudential purposes, rather than on individual claims and expense statistics.
To break through the absence of detailed statistics, Ministers relied on two sources to gain a preliminary understanding of the issues.
As a result of the failure of HIH, the former Minister for Financial Services & Regulation commissioned a study by the ACCC into insurance pricing.
The first ACCC `Insurance Market Pricing Review' was released in March 2002 just prior to the first Ministerial meeting. This report identified a range of factors impacting on the cost of public liability and professional indemnity insurance. These included general wage inflation, insurance companies restoring premiums to adequate levels in light of heavy losses in these classes over recent years, continuing increases in the cost of claims and the increasing costs of reinsurance.
In addition, I commissioned an actuarial report to determine other factors driving up insurance premiums. This report indicated that major drivers of rising premiums and reduced availability of public liability insurance included changing community attitudes to litigation, changes in the courts' view of what constitutes negligence and increased compensation payments for bodily injury claims.
A further actuarial study presented to the second Ministerial meeting indicated that bodily injury claims had been increasing on average by 10 per cent per annum over the past decade.
Turning information into action
Armed with better information about what factors are driving premiums, Ministers determined that the area in which Governments could make the biggest contribution to reducing the problem was through the reform of the law.
An expert Panel, chaired by Justice David Ipp, was commissioned to review the law of negligence as it applies to claims for bodily injury and to provide a blueprint to Governments for reform.
The Panel appointed to undertake the Review sought to strike a balance between the interests of injured people and those of the community at large and to impose a reasonable burden of responsibility on individuals to take care of others and to take care of themselves.
The Panel made 61 recommendations on specific changes that could be made to the law of negligence.
An overarching recommendation of the Panel was that the reforms should apply to any claims for personal injury resulting from negligence, regardless of whether the claim is brought in tort, contract, under statute or any other cause of action.
A further key recommendation made by the panel was to modify the standard of care to be applied to doctors and other professionals in assessing negligence. The new test would reinstate a modified version of the Bolam test and would re-balance the interests of plaintiffs and defendants. It would mean that doctors would be protected against a claim for negligence if they have acted in accordance with an opinion widely held by a significant number of respected practitioners in the field, unless the court considers that the opinion was both widely held and irrational.
The panel considered that this recommendation could be applied to any profession or trade and it would provide significant protection for professionals acting in accordance with accepted practice.
A major component in determining negligence is forseeability. That is, a person can only be responsible for harm that they knew about or ought to have known about. Presently, risks that, as a matter of common sense, appear to be anything but far-fetched and fanciful can result in large awards for damages.
The panel recommended that the forseeability test should be "not insignificant" and that there should be principles to evaluate whether a reasonable person in the defendant's position would have taken precautions against a risk of harm to others. For the average person, this is a subtle change to the test. For tort lawyers, it is a substantial change to the test and if legislated in all jurisdictions, it will provide a clear signal to judges as to how to approach questions of liability.
Other important recommendations relate to liability of public authorities and are particularly significant for local councils so bedevilled by concerns about failing to give specific warnings of risk.
The panel recommended that a claim for damages arising out of the negligent performance or non-performance of a public function should not generally succeed where a public authority had taken a decision to perform or not perform that function on policy grounds - unless the decision was so unreasonable that no reasonable public functionary could have made it.
This recommendation clearly acknowledges the need of public authorities to make decisions taking into account not only potential risk of harm but also financial, economic, political and social factors.
There are also recommendations concerning liability in relation to recreational services - something that is vital to our communities and the Australian way of life. The panel has recommended that voluntary participants in recreational activities should not be able to sue for injury in circumstances where the risk of that injury occurring from taking part in the activity is obvious.
Other recommendations relate to contributory negligence and proportionate liability, processes for expert evidence, causation and damages.
Turning the Ipp vision into a reality has required strong leadership from the Commonwealth, State and Territory Governments.
I am pleased to say that States and Territories have responded to the call. At the last Ministerial Meeting held in Brisbane two weeks ago, Ministers made a land-mark commitment to reform the law of negligence in accordance with the majority of Ipp recommendations. For the first time there was agreement for a national law of negligence.
The Federal Government is playing its part by making a commitment to amend the Trade Practices Act to underpin State and Territory law reform. This is consistent with the Ipp recommendation to ensure that the same rules apply to any action, regardless of whether it is brought under tort, contract or under a statute. It is essential to amend the TPA to ensure that it is not used as an alternative cause of action in circumstances where a common law action may be prevented by State law reform.
In addition to the recommendations of the Ipp report, Ministers are also considering what else can be done to assist professional organisations that may be sued for economic loss.
Strong agreement is emerging for the introduction of proportionate liability for economic loss with some jurisdictions firmly committed to implementing legislation and others close to finalising their positions. In addition, work is continuing to consider the merits of capping liability and risk management via professional standards legislation.
An area in which it is unlikely that national consistency will occur is caps and thresholds on damages. While the majority of States and Territories have already implemented or announced plans to implement caps on general damages, economic loss or future earnings and thresholds for general damages, these caps and thresholds vary depending on the jurisdiction.
Insurers have advised that national consistency in these areas is not as vital as rules that go to the establishment of liability in the first place. Indeed, it may be that it is appropriate to have in place different damages regimes in different jurisdictions to take into account economic differences in different geographic locations.
What is clear however, is that thresholds in particular are essential to reducing insurance premiums in the short term. I will touch on this point again in a moment.
Seeing results
Many might see the link between law reform and the cost of insurance premiums as being something which might deliver far off benefits. What can law reform do to relieve pressure in the short term?
According to an actuarial report to Ministers at the fourth Ministerial meeting held in Brisbane, the answer to this question is `quite a lot'.
An assessment by PricewaterhouseCoopers showed that the implementation of some elements of the Ipp Report, in particular, thresholds on general damages, could be expected to deliver an initial reduction in public liability premiums in the order of 13.5 per cent and that 80 per cent of small claims would potentially be removed from the system altogether. Significant reductions in medical indemnity insurance premiums of between 15 per cent and 18 per cent were also estimated for most jurisdictions.
For those jurisdictions yet to take a view on the desirability of thresholds, this assessment provides a compelling case.
Further, the behavioural effects of adopting the suite of Ipp recommendations on the definition of negligence, duty of care, and other recommendations on liability reform should result in significantly larger savings over time that are currently difficult to quantify.
Insurers present at the meeting agreed with this assessment and assured Ministers that adoption of the Ipp recommendations will increase the availability of public liability insurance cover, particularly in the community sector, and will bring certainty and stability to pricing.
To make sure this occurs, the Federal Government has provided the ACCC with an ongoing monitoring role over the insurance industry to ensure that premiums are being adjusted to take into account cost savings generated through law reform.
There has also been a strong indication that, in view of the comprehensive reforms, insurers will favourably consider re-entering or commencing green fields operations in the market for liability lines.
We already have evidence that this is occurring. Yesterday, the ACCC gave interim authorisation to a new joint venture between Allianz, NRMA Insurance and QBE. This joint venture called `Community Care' will provide public liability to New South Wales based not-for-profit organisations.
The joint venture will commence operations in New South Wales as soon as assent is given to the State Government's reforms which largely implement the recommendations of the Ipp report. I understand that Community Care will expand operations into other States and Territories once similar reforms are implemented in those jurisdictions.
This is a terrific step forward and shows the concrete results that the governments can deliver to their communities by taking strong and decisive action.
Answering the Critics
As with any major reform process, this one has not been without its critics and its naysayers.
In the words of Machiavelli, "there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage, than the creation of a new system. For the initiator has the enmity of all who would profit by the preservation of the old institutions and merely lukewarm defenders in those who would gain by the new ones."
Various reports have suggested that legal and administrative costs make up as much as 40 per cent of the total costs of the personal injury liability system. It is not unexpected that groups that derive their income from this source would seek to maintain the status quo clothed in emotive advocacy for plaintiffs' rights.
Of course, plaintiff's rights do not count for much if no one is able to afford insurance or if insurers are unable to meet claims.
Insurance provides the mechanism to enable compensation payments to be made. Very few people sue uninsured entities, unless that entity is sufficiently large to self-insure.
The reforms agreed to by governments provide an appropriate balance. They will ensure that those who are seriously injured as a result of the negligence of others are able to be appropriately compensated and cared for, through the encouragement for example of structured settlements as an alternative to lump sum settlements and the implementation of a Commonwealth scheme for medical indemnity claims in excess of $2 million, but discourage the small and frivolous claim which drives up the cost of insurance so that it becomes unaffordable or unobtainable for the broader community.
Conclusion
In summing up, let me say that, while we are not there yet, I think we are very close to seeing some considerable runs on the board.
The reforms will make a considerable contribution to turning the tide not only on the premiums for small business, community groups, professionals and doctors, but will also go to restoring the balance between the communities expectations of what is reasonable with the compensation provided by our courts.
The progress made to date, from what was essentially a standing start at the beginning of 2002, has been quite remarkable.
The cooperative, pragmatic and non-partisan attitude which has been adopted by all Governments to this issue is delivering tangible results to the Australian community.
For my part, I can assure you that I will continue to drive reform on this issue until such time as the results are delivered.
Thank you.