The concern of the community in regard to the increased cost of sports insurance is well documented.  Increases of 1,000% and more have been reported, as have instances of where public liability insurance has just not been available.  The impacts are being felt across a wide range of organisations throughout Australia, including sporting organisations, events organisers, not for profit community organisations and commercial business operators.  There is anecdotal evidence to suggest that some organisations have ceased to operate either due to them not being able to afford to pay the price of premiums or cover not being available to them.  The potential effect on Australian society is enormous.

It is not an over-statement to say that the situation has reached a crisis point.

Whilst this paper aims to identify some solutions to this problem, in order to identify solutions first it is necessary to investigate the causes of these dramatic premium increases.

When setting insurance premiums a prime consideration of an underwriter is the risk exposure involved.  When assessing this exposure a critical factor is the claims history of the risk in question, but the underwriter will also take into account the potential for claims on the policy in the next policy period.  Looking at claims history, underwriting results in recent years for public liability insurance have provided unsatisfactory results for Australian insurers.  A table is found in the appendix that provides data for the period 1996 to 2000, but as an example, in 2000 $883.3 million was collected in premiums and $1,182.7 million was paid out in claims.  That is a gross loss ratio of 134% (i.e. claims incurred is 134% of premiums received).

The appendix includes graphs that provide a pictorial report on liability underwriting results and number of claims received from 1996 to 2000.

As unsatisfactory as these results may be from the insurers perspective, the question remains as to whether they justify the dramatic increases the insurers are applying, or as is also being experienced, underwriters refusing to provide insurance.  In some cases such justification is extremely difficult, however, as was stated previously, premiums also take into account the potential for claims in the coming policy period.  With current trends in litigation and the long tail nature of liability claims (i.e. claims on events occurring in the policy period being made long after the applicable policy period) it is almost impossible to accurately forecast.  Insurers will claim that claims history and provision for trends justifies the premiums being charged, others will claim that insurers are trying to make up for poor management, previous premium rating practices and acceptance of sub-standard risks. 

In summary, the prime cause of the current liability insurance crisis is the fact that unsatisfactory underwriting results for insurers on liability insurance combined with their concern on future trends in liability actions makes this class of business very risky with the potential for them to suffer significant losses.  Particularly in these times when the insurance industry has been extremely hard hit financially by events such as the September 11 disaster, many insurers consider that they cannot justify the risk of writing liability business.  

Much discussion has taken place to date in regard to the liability crisis and what actions can be taken to ease the problem.  Various issues have been raised, all of which would seem relevant and deserving of consideration, but many of which have also been rebuffed by other sections, again often with some justification.  For example, one recommendation has been for a cap to be put on the size of awards as applies in workers compensation legislation in many states; opposing that proposal is the claim that such a cap contravenes the rights of the individual.  Another suggestion has been for Australia to adopt a no-fault accident scheme as applies in New Zealand, but the enthusiasm for that has waned having recognised the difficulties that continue to be experienced in New Zealand, let alone the fact that such a scheme has been proposed previously, with it being considered that constitutional and political restraints would prevent such a system ever being introduced.

Referring back to insurers, some will claim that they have taken a soft approach by refusing to fight liability cases out in court when they have a chance of winning and thus lose the opportunity of achieving some judgemental direction.  Insurers will argue that they need to make a commercial cost effective decision, which often means they are better off settling out of court.

The no win no fee method of charging used by the legal fraternity that came about in the mid nineties, with advertising being introduced by legal firms, some even in prime time television, will generally cop a barrelling over its contribution to the current situation.  Plaintiff lawyers however will claim that they are being demonised and that there has in fact been an average annual decrease in the number of lodgements received by courts throughout Australia since 1997-98.

What stands out in all of this is that it is a very complex matter – there is not a simple single solution and not everyone will be in total agreement with whatever action is taken.  The recommendations put forward all have as an aim a reduction in the incidence and/or quantum of liability claims, as it is reduction in claims costs that is the key to reduced liability insurance premiums.  The fact of the matter is that remedying the problem will take time, and it will require the co-operation and determination of all parties involved. 

This paper seeks to identify areas where sports administrators can be proactive and take action that will make a contribution to easing the situation; actions that are not necessarily restricted by the burden of issues such as legislative change.  First we will consider the methodology by which insurance for sporting bodies is arranged.  

                                                                    Continued.....