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REVIEW OF CONSUMER COMPENSATION LAWS –
A REPORT CARD
Posted August 1, 2002
In June 2002, the federal government announced a “review” of the law of negligence with the “objective of limiting liability and quantum of damages arising from personal injury and death.” The panel was required to complete part of its review by 30 August and the balance by 30 September.
Our ‘report card’ offers a summary of the review and its implications for consumers.
Terms of reference distorted
The ‘review’ was told it must assume that it was “desirable” to limit the responsibility of people who behave recklessly and limit the amounts that their insurers should pay to those maimed by careless conduct. The panel was prevented from examining the true nature of the insurance market and the factors responsible for the insurance crisis.
Who was on the panel?
All four members were from NSW. They included a Sydney surgeon and a NSW mayor both of whom had previously spoken out in favour of removing civil rights from the public to reduce insurance costs for business.
Superficial at best
The report displays an alarming lack of insight into the economic and social issues concerning legal liability for reckless conduct. It contains many “unfounded inferences” and “recommendations are thrown around with little or no assessment of their consequences….” (Henry Ergas, Australian Financial Review 11/11/02). These failures are fatal flaws.
Claims attacked not injurers’ conduct
Despite a horrifying injury rate from avoidable conduct, the report focuses on the claims made by the victims not the careless activities that cause them!
Cost of injuries ignored
The annual cost of avoidable injuries in Australia is estimated at over $15 billion. This was not analysed or even discussed in the report. The cause of injuries must be addressed if the continual drain on resources including hospitals and social security is to be relieved.
Insurers shielded from scrutiny
There is a glaring absence of detail as to the management
failures of insurance companies. The extent to which poor underwriting
practices and the excesses of companies like HIH and FAI has contributed
to the crisis, is omitted.
Australian Prudential Regulation Authority
(APRA) whitewash
APRA is a federal body that has important functions to scrutinise and investigate the management and operation of financial bodies including insurers. The report fails to address the omissions of APRA in preventing the HIH and FAI disasters.
Below market premiums unexplained
The report fails to unmask the damage done to the insurance market during the 1990s when insurers kept premiums artificially low to win customers from one another at any cost. The huge operating losses and run down of reserves that resulted is not examined.
Major factors ignored
The panel was prevented from examining factors that are now widely accepted as the major cause of the insurance ‘crisis’ including the collapse of HIH that had the immediate effect of driving up premiums and the increase in the cost re-insurance following September 11. The decline on insurers’ investments due to low interest rates and world growth was also ignored.
Critical assumption wrong
There is no evidence that litigation by individuals has any impact on insurance rates. Insurance rates are not blowing out relative to premiums. The ratio of claims to policies has grown by less than 3% a year since 1996. (Henry Ergas, Australian Financial Review, 11/11/02)
Language reflects prejudices of the privileged
The resentment held by the privileged of the possibility of ordinary citizens recouping their losses through the legal system is exemplified in many places throughout the report. The panel argues that social security is adequate for meeting the needs of people injured by reckless conduct! There is a casual acceptance of “notions” and lack of will to uncover real evidence.
Why are children and people with mental illnesses discriminated against?
The panel simply decided that the special degradation of the rights of these groups is ‘fair’.
How was the 15% threshold arrived at?
The panel accepted, without any evidence or even logical discussion that a person with a 15% bodily impairment has an injury “which heals relatively rapidly….are relatively minor…and where the economic loss is relatively insignificant.” This is contrary to medical opinion.
Why are all the changes in favour of insurers?
For a start, the terms of reference for the review and the make up of the panel were straight from the insurers’ wish list. They have also conducted a very successful public relations campaign and have used a strategy to create hysteria among the public to panic legislators into making laws that suit them.
Confused about the true facts
Big business and insurer groups barraged the panel with self-serving submissions. Their campaign was designed to distort and convey a false impression that Australians support an attack on their fundamental rights.
How extensive was the inquiry?
The short length of the Inquiry sunk it from the beginning. The panel agreed that “the period available for review is indeed extremely brief given the complexity and difficulty of the task it has been asked to perform.”
Does the review make any helpful recommendations?
Yes. There are several, including a system to streamline claim procedures. Overall however the proposals are overwhelmingly anti-consumer.
Opinions of consumer and citizens’ rights advocates.
"The Commission, in light of the lack of empirical data at present on the so-called 'litigation explosion' and associated claims….recommends that caution should be exercised in implementing significant policy and other changes to address the situation."
Australian Competition and Consumer Commission (ACCC)“The Ipp Panel has been asked to make recommendations regarding further limits on compensation for those injured through negligence. But we have still not seen any proof that negligence laws are the cause of the insurers' problems, and that cutting entitlements will improve the situation. There is still no evidence to show that cutting the compensation of injured citizens will reduce or contain insurance premiums."
Rob Davis, President, Australian Plaintiff Lawyers Association (APLA)Insurance claims are not blowing out relative to premiums. The ratio of claims to policies has grown by less than 3 per cent per year since 1996. Assertions that we face a crisis in the cost of providing insurance are at best unproved and at worst self-serving rhetoric. The final Ipp report …repeats and aggravates earlier errors….in a mistake even a first year student of economics would recognise… Precluding lawsuits where the underlying grievances are legitimate is merely a way of making relatively poor people worse off.”
Henry Ergas, economist, Network Economics Consulting, Canberra“The lack of competition in the Australian insurance market following the demise of HIH has seen predatory insurers slugging businesses, even those with no prior claims, with exorbitant premiums. Insurers are asking that they should be virtually claim proof but still want to collect huge premiums. The changes they want would leave individuals and families to suffer the consequences of reckless conduct while their profits will go through the roof.”
Civil Justice Foundation
