Submission by the Home based Business Association (Australian Capital Region) 
on Public Liability Insurance Issues for Home based and other Micro Businesses to the
Australian Senate Committee on Public Liability Insurance
Insurance is designed to offset the risk financial or otherwise extant in a transaction or activity.  For business operations this falls into several categories incidental damages and injury, failure to provide goods or services and general business losses such as theft of plant and stock.  The first two are of prime concern.  As business people we understand that insurance is a normal cost of doing business and the cost should reflect the extant level of risk.  Home based and other micro businesses are at a greater disadvantage in terms that the premiums become a greater impost in percentage term for lower turnover businesses.  Hence these businesses are more acutely aware of the uncertain climate surrounding business insurance premiums.  
We have several points to make and offer an alternative compensation model for consideration.  
Professional Indemnity
The government seems to place levels of risk that bear no relation to the risk involved with the provision of goods or services provided.  Some levels of cover cannot be contracted even in better times.
Why do levels of $5 million plus professional liability apply to services?  Consider data processing where the value of the whole contract is say $20,000.  The real level of risk is failure to complete on time or lack of competency to do so.  The real level of risk is the task may need to be redone at a higher cost.  If the job was worth $5 million the government would have failed to adequately manage this task by failing to ensure that the service provider understood the extent of the service required.  
In the event of expert advice then the government can choose to accept or reject consultant recommendations.  Government should accept the risk once it has accepted the advice and supported the decision.
Public Liability Issues
Why do government instrumentalities often apply levels of public liability that outweigh the level implicit in the provision of goods or services?  Some services will not directly affect the public and the level of injury is non existent.  Provision of goods that may incur injury may need a greater degree of public liability.  However, any level of liability cover should reflect the risk brought about by the size of the contract.  
If government correctly specifies and manages the contracts to ensure mandatory standards are met then the risk should pass with acceptance of goods or services except where poor workmanship or other manufacturing defects are found.  Perhaps the government could arrange for insurance for all of their smaller supply contracts and suppliers could opt to use that cover in much the same way we insure goods in transit.
It was recently described to me that the insurance issue is like an elephant being inspected by blind people.  Each person forms a different view of the animal that depends upon which part they get to hold.  Unfortunately, those who can see are not being listened to by the blind protagonists who are blindly protecting their interests rather than seeking a fair solution.
Alternative compensation model
While much has been made about capping payouts we need a more flexible and transparent model.  One of our members suggests that a consensus solution should recognise all rights in context and capping does not provide any flexibility.  For example suggestions that the government take on long term support suggests that we get rid of insurance altogether and that could be seen as patently ridiculous.  Rather than trying to make it a more civilised war in assigning compensation we need to separate the combatants.  We also need to reduce the risk and the principal point in the process where this can occur is to professionally manage compensation payout.  Risks can be further reduced by acknowledging compensatable items against an agreed schedule for ratification by the Court and limiting the component that is subject to litigation.  Caps and other such limits could be seen as counter productive and vigorously opposed by some groups by reducing victims rights.  We need a model that stabilises the system and maintains reasonable rights for all parties.  Victims need to know that their needs will be met and insurers need a system that enables them to make reasonable assessment of the risks involved.  There is a proposal to pool input premiums but this has its limitations in so far that the risks are harder to define.  
Currently, there are problems of fund management with lump sum payments directly to individuals in that the recipient may receive poor advice and lose significant income such that they later need to resort to social security payments.  They then become a charge on the community, a poor outcome for all: victims, insurers and most importantly the community picking up the pieces
Superannuation provides us with an existing model to use as framework to manage compensation payments in a pool rather than polling the premiums.  The market place would determine risk and premiums but objectively the compensation is not a marketable artefact it is a determination of resource needs that require husbanding and professional management in a similar way to superannuation funds. 
Compensation payouts come in four main parts these being actual costs incurred, estimated future income, care costs and punitive damages.  
Actual costs incurred are easily determined and should require no argument.  These could include medical costs and initial costs to modify houses and vehicles for mobility and access.  
Estimating future costs is harder since it will need to address a number of less well defined contingencies.  It would need to consider loss of future income or potential future income in the case of a child, ongoing care costs and higher living cost incurred due to disability.  These less well defined costs would easily be determined by normal actuarial methods.  
Payouts would be in two parts the first an immediate cash payment to cover Actual costs.  Lump sum payments for loss of income and care would be paid into a professionally managed trust fund pool.  This pool would pay out two indexed payments in a similar fashion to superannuation.  One payment would be made to the victim and the other to care givers for ongoing care and rehabilitation.  
This would leave the issue of punitive damages.  Here there could be two options.  Punitive damages could be sought through the courts or that right waived with an option to return for additional support if the injuries sustained cause a significant increase in costs for care at some future date.  Any punitive damages awarded would be paid as a lump sum and capped as say 5-10% of the assessable costs with deductions for contributory negligence.  Such a sum could be withheld for a statutory period to ensure that injuries claimed were substantiated.  Such agreements would be ratified by the court and subject to government oversight of ongoing management.
This model separates the immediate cost from the settlement, the ongoing costs are provided in a way that is fairer for all and should ensure that costs would be lower.  This will still require legal counsel and there would still be the possibility of a legal challenge in respect of punitive damages but this would be limited.  Insurance companies may need to top up in respect of each claimant over time.  This would depend on economic and actuarial advice at the initial settlement.  
While this suggested model might have some deficiencies it provides a possible fairer approach to providing compensation at a reasonable level over the remaining life of the claimant.  Blame is also still apportioned.  Such outcomes would need to be ratified in a court.  
This model would also need to address the issue of dispersal of funds upon the decease of the victim.  The victim with existing lump sum cash payment with good management could end up with some benefit to their heirs.  Poorly managed funds would leave very little if any.  A suggestion on the basis of fairness would be that the residual sum be split in half.  Half would go to the estate and the other half returned to insurance companies reserves to further assisting keeping premiums at reasonable levels.  This would require prudential oversight and regular statements of funds and the disposal to victims.
Another issue is people injured who are in the act of committing a crime.  They should be excluded from any compensation payments.  This may be harsh but could be a greater deterrent to similar behaviour in the future rather than sending them to jail; all at no cost to the community.  No compensation, no special treatment and no government assistance for a withholding period of say 5 years for them to contemplate their failings.
Recent payouts highlight the current farcical state of claims.  We could reach the stage that if the courts insist on warnings for every contingency we could never read all of the posted warnings.  Suppose an unknown person drops a banana skin and someone slips on it.  Who is liable, since the original culprit cannot be identified?  The responsible authority cannot be at every point to immediately clean up since we need space for visitors and shoppers otherwise access to a location is pointless.  People need to take some responsibility for their own welfare and where you go is your responsibility not anybody else’s unless it is under duress.  People do have accidents and authorities should not be absolved where say footpaths are not kept in good repair.
Summary
The level of insurance required by government should more accurately reflect the real level of risk to the government.  
Rather than pooling unknown costs, pool a known cost with well managed funds for expected outcomes.  Minimise access to punitive damages.  These suggestions should reduce the degree of uncertainty and level of risk.  An outcomes pool ensures that government does not become the de facto care supplier at taxpayer expense.
Remember the public can see what the elephant is while the combatants try to work out what it is and how to manage it.  Insurance is a service and it will not be changed to meet community needs while input is restricted to the main protagonist with their own blinkered and sometimes selfish view.  Insurance companies expect to payout no money and lawyers expect to obtain maximum payouts with unlimited fees.  Lets try to find some middle ground and a return to responsible service provision at economically justifiable rates.