Public liability claims management

The nature of public liability insurance has precluded the type of benchmarking the Commission has previously undertaken with economic infrastructure. The heterogeneous nature of the risks covered, as well as differences in institutional arrangements and regulatory regimes, limit the scope for policy-relevant, like-with-like comparisons between Australian insurers and with overseas insurers.

The broad steps involved in managing claims are fairly common across the industry. Differences arise because, for example, the portfolios of public liability risks underwritten by insurers differ, and require different claims handling processes. It is widely recognised that there is no single best practice for public liability claims management.

Insurers generally have sufficient information to manage their own claims effectively. But better use of claims data could be made by some insurers for a range of other purposes, such as premium setting and risk management.

There is some state variation in claims management costs due to differences in statute law, legal representation costs and court procedures and costs.

The involvement of lawyers in public liability claims has increased. Litigation, in the sense of the commencement of court-related processes, has also been increasing, although most cases are settled prior to trial.

Setting premiums for public liability insurance is very difficult because of its 'long-tailed' nature (claims costs occur over many years) and the wide range of risks it covers. Since the mid 1990s, public liability insurance has operated at a loss.

The market environment in which public liability claims are managed remains competitive and should provide sufficient incentives for insurers to make their claims management practices efficient and cost effective.

There is nothing inherent in Australian insurers' claims management practices, or the environment in which they are undertaken, which would prevent the benefits from government initiatives to improve the availability and affordability of public liability insurance from being passed onto consumers.

Claims management practices for public liability insurance should not prevent benefits from recent government policy changes being passed onto consumers, according to a Productivity Commission report.

The Commission found that the market environment in which public liability claims are managed remains competitive and should provide sufficient incentives for insurers to make their claims management practices efficient and cost effective.

The Commissioned Research Study — Public Liability Claims Management — reviewed the efficiency of managing public liability claims in Australia. The study was undertaken in response to concerns that Commonwealth, State and Territory measures to improve the availability and affordability of public liability insurance may not be reflected in premiums.

Commissioner Judith Sloan said that, while the broad steps in managing public liability claims are common across the industry, claims management practices between insurers vary significantly.

'The differences are due to the diverse nature of the risks covered, as well as differences in institutional arrangements and regulatory regimes. As a result, there is no single best practice for claims management — no one size fits all.'

The Commission also pointed out that fundamental to public liability claims management is the need to establish liability and the quantum of damages within an adversarial common law system. This has a major influence on the costs and time taken to handle public liability claims in Australia.

Preliminaries
Cover, Copyright, Terms of reference, Foreword, Contents, Abbreviations

Overview
Key Points, Overview, Findings

1 Introduction
1.1 Background
1.2 The reference
1.3 Related inquiries
1.4 The Commission’s approach
1.5 Structure of the report

2 Public liability insurance
2.1 What is public liability insurance?
2.2 How is public liability insurance provided?
2.3 Self insuring for public liability claims
2.4 Public liability insurance activity
2.5 Regulation of insurance

3 Public liability insurance — market characteristics
3.1 Market definition and structure
3.2 Barriers to entry and exit
3.3 Other market conditions
3.4 Profitability and pricing

4 Claims management practices
4.1 Strategic approaches to claims management
4.2 Operational approaches to claims management
4.3 Feedback loops
4.4 Data and technology

5 Legal costs and processes
5.1 Legal costs
5.2 Litigation and court judgments
5.3 Court-based case management
5.4 Recent or proposed changes in public liability regimes

A Conduct of the study
Consultation with individuals and organisations
Roundtable

References