The Insurance Crisis – How To Achieve Sustainable Premiums By Rod Hughes Australian Yachting Federation Insurance & Risk Management Seminar 8 th June 2002

The Situation Dramatic increases in liability insurance premiums, or even unavailability of cover Impacting on wide range of organisations – sporting bodies, event organisers, community organisations in addition to commercial business operators Enormous effect on Australian society – situation reaching crisis point

The Cause Prime consideration in setting premiums is risk exposure –Claims history –Potential for claims in future policy period Substantial underwriting losses to insurers on liability cover e.g. loss ratio in 2000 of 134% i.e. claims incurred 134% of premiums received

Justification?? Future trends – “long tail” nature of liability claims Risky business – potential for significant loss Unsatisfactory results – shareholder demand for returns – associated events e.g. September 11, HIH Does potential benefit justify the insurers risk??

Suggested Actions Include Capping of claims / Rights of the individual No fault scheme as in New Zealand / Financial problems, constitutional/political constraints Contingency fees / affordability for all, annual decrease in court lodgements Disclaimers, Waivers / Trade Practices legislation Insurers settle rather than fight / commercial cost effective decision

Very complex matter – no single simple solution Will require cooperation and determination of all parties involved Will not be solved overnight The key to reducing liability premiums is to reduce liability claim payments

As sport administrators, what can we do?

Group Pooling? Premiums based on actuarial calculations – incident rate, average cost of claims Once sufficient numbers to prevent distortion, extra numbers do not reduce the risk Extra numbers may provide higher risk The lure of extra premium has contributed substantially to the current situation e.g. demise of HIH

Group Pooling With Self- Insurance? Mutual pooling of funds to meet the cost of claims – re-insurance to protect against shortfall Lower allowances for expenses and profit Must be based on very sound foundations, including detailed claims data Does not reduce claims risk

Reduce Incident Rate, Reduce Average Cost of Claim Critical to reducing the cost of liability insurance – must happen for there to be sustainable premium reductions Actions taken that do not have the effect of reducing the incidence and/or cost of liability claims will have limited influence Group pooling in isolation will have limited impact

Risk Management The broad terminology used for programs that will reduce incidence rates and/or the average cost of claims Any pooling actions must be linked to effective risk management to gain benefit Mandatory standards for all involved Internal and external audit Requires education, training and resources

Risk Management ….. Most liability claims in sport involve personal injury Injury data collection – “if you do not measure it, you cannot manage it” Injury intervention strategies – measured for effectiveness Room for considerable improvement

Best Practice Management Effective risk management infrastructure Sector taskforce to oversee operations of compliance to maintain a best practice mechanism Injury data collected and utilised in prevention campaigns Recognition by insurers that their ratings will be reflective of clients adherence to best practice and industry standards A commitment from all parties concerned to be prepared to give some ground in the knowledge that more of the same is not a viable proposition