Liability
Insurance - So, Is There Any Sign Of Improvement Yet?
Back
on the 27th of March 2002 Sport Industry Australia presented
a seminar in Canberra on the “liability insurance crisis”. At that
meeting I made a presentation that looked at the causes of the “crisis”
and also some items for consideration in looking for means of addressing
the situation.
Various causes were identified as contributing to the problem.
Unsatisfactory liability underwriting results for insurers, trends in
litigation, the “long tail” nature of liability insurance, global
natural disasters and terrorism (including the September 11 2001 attacks
in New York), reduced investment income caused by falling interest rates
worldwide and the value of equities reducing insurance industry capital
all played their part.
In
identifying areas where sports administrators could be proactive in
taking actions that could contribute to easing the situation the
methodology used in arranging insurance cover was reviewed. Whilst it
was recognized that there was some benefits to be gained in increasing
the numbers to be insured under a single policy (e.g. reduced
administrative expenses to the insurer) it was also acknowledged that
simply increasing the size of the pool to be insured in isolation did
absolutely nothing to reduce the likelihood or consequence of claims and
therefore would not improve the underwriting result to the insurer.
It
was identified that it was those actions that would have a positive
effect on reducing the number of incidents that could lead to a claim
(reduced likelihood), and/or actions that would reduce the average cost
should an incident occur that could lead to a claim (reduced
consequence) that would result in stable and sustainable insurance
premium rates due to an improved underwriting result for the insurer.
The implementation of effective risk management programs within sporting
organisations is critical in this regard. |
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Coincidentally, on the same day the Sport
Industry Australia seminar was held Federal Minister for Revenue and
Assistant Treasurer, Senator Helen Coonan, coordinated a meeting of
State and Territory ministers to address the issue of the “liability
insurance crisis”. This meeting eventually led to the appointment of
an expert panel to examine the law of negligence (from which “The Ipp
Report” was produced that contained 61 recommendations in regard to
negligence) and the introduction of law reforms that have either
already been passed or are working their way through the legislative
system.
The aim of these law reforms is to have a
positive effect on the cost of liability insurance premiums by reducing
the likelihood of legal actions and/or reducing the financial
consequence of legal actions and therefore improved underwriting result
for the insurer (remembering that liability insurance responds to legal
actions for alleged negligent acts). The strategy is very similar to
that of administrators introducing risk management into their sport, but
there is a difference. The administrator is aiming to reduce the
likelihood and/or consequence of an incident occurring, whereas the
legislator via law reform is aiming to reduce the likelihood of an
incident being unreasonably judged as negligent, and/or reduce the
financial consequence of negligence to a reasonable level. Both serve
very important roles, but I believe most would agree with the principle
that prevention is better than cure.
Of further significance in regard to the
insurance issues facing sporting organisations was the release in
February 2003 of an Australian Sports Commission (ASC) Insurance Report
commissioned to Ernst and Young. The suggestions and recommendations
made in this report for the ASC are as follows: -
Continued
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