The pain and perils of public liability
Sounds like trouble: live music venues struggle to access public liability insurance
Rising public liability premiums are hitting businesses ranging from caravan parks and entertainment venues to mining and construction companies, fuelling calls for reforms that could reduce the financial risks and leading to concerted efforts by industry associations to ease costs.
Live music businesses say premiums have soared, especially for smaller venues that can have crowds up to 400 and that can least afford the increases, with a sweeping approach hitting many businesses after underwriters experienced some large claims.
“A lot of live music venues are in a position where they have to start making decision about their future and how they’re going to operate,” Australian Live Music Business Council Executive General Manager Stu Watters tells Insurance News. “It’s a predicament when insurance becomes one of the largest costs live music venues have.”
In extreme cases music venues have seen premiums rise from $10-20,000 to $140-160,000 after a major market reset by insurers that hit particularly hard a year ago. Venues which open after midnight, serving alcohol and with a dance floor, have had major problems.
The group has been liaising with the Insurance Council of Australia (ICA) to find solutions. The approach has included helping members to provide clearer information to underwriters about risks and mitigation, and using technology to collect and present information.
Cover is now mostly through the Lloyd’s market rather than local underwriters.
Caravan Industry Association of Australia General Manager for Government Relations and Corporate Communication Luke Chippindale says caravan parks have faced significant premium increases, with some removing features such as jumping pillows enjoyed by visitors but deemed risky by insurers.
The association’s submission to the Federal Government Budget this year raised the issue of members seeking property and liability cover facing rate hikes ranging between 40-500%. It has called for a national review of tort law.
“We are hoping for government to have a review over whether there is something that can be done,” Mr Chippindale tells Insurance News. “We are in a fairly litigious society and a lot of instances come down to people’s behaviour despite what is communicated and being mitigated against. The burden is being borne by the parks.”
The association is also aiming to ensure parks are better positioned to present their case to underwriters using data and information so businesses gain a more positive response at renewal.
“We’ve been working with the ICA and brokerages around the country to understand what’s going to potentially make life a little bit easier and better for caravan parks,” Mr Chippindale says.
The Australian Small Business and Family Enterprise Ombudsman examined public liability cover during its insurance inquiry in 2020 and has looked at an Australian Amusement, Leisure and Recreation Association plan for a mutual insurer.
“In the amusement, leisure and recreation sector, public liability insurance has become unaffordable or simply unavailable for some operators, forcing business closures, job losses, and a reduction in activity that is important to livelihoods and communities in regional Australia,” Ombudsman Bruce Billson tells Insurance News.
“We have supported the creation of a discretionary mutual fund for this sector.”
Australian Prudential Regulation Authority (APRA) data shows the average public and products liability premium has increased 40% since 2015 as claims trends deteriorated, while deductibles have also risen.
Bodily injury claims represent the largest contribution to premium and claims cost growth, with the average finalised claim size increasing 5.5% a year since 2013.
Looking at open and finalised costs, there is a higher incurred cost for accidents after 2017, driven by work injury and fall claims.
Challenging areas include adventure and leisure sectors, business scenarios where there are heightened risks of falls, the worker-to-worker segment, which involves contractors or labour hire firms, and organisations where abuse or sexual misconduct risks are a factor.
Worker injuries in recent years have an average claim size that’s more than double the level for other bodily injuries, while the APRA National Claims and Policy Database indicates an increasing number of psychological claims.
APRA says claims cost increases in the sector have been higher than general inflation, driven by “social inflation” – such as from higher claimant demands and media scrutiny, as well as legal and litigation expenses and rising medical bills.
Broker Honan says in a June market update that casualty insurers remain deeply concerned about the “persistent impact of long-term social inflation” on the cost of liability claims.
“This phenomenon, which has been affecting the industry for many years, is primarily driven by a surge in litigation and rising court awards for pain and suffering settlements,” Honan says. “Although this is not a new trend, the true impact is only now becoming apparent as liability claims can take three years or more to reach resolution.”
Deflated: some caravan parks are removing jumping pillows
“It’s a predicament when insurance becomes one of the largest costs live music venues have.”
– Stu Watters, EGM of the Australian Live Music Business Council
Actuarial and insurance consulting specialist Finity says Australia has experienced its fifth consecutive year of double-digit premium growth for the commercial lines market, with strong rate gains in most classes. Some areas are now moderating, but liability continues to face challenges.
Principal Susie Amos says the frequency of work-related injury liability claims and the time it’s taking for those to emerge has led to reserve strengthening by locally listed underwriters and rate increases to reflect a changed environment.
“[Insurers’] view of profitability is now different for their new risks coming through, and they need to allow for that significant level of worker injury, or worker-to-worker exposure,” Ms Amos tells Insurance News.
In labour hire and contractor scenarios, claims can involve a person’s primary employer as well as a company that operates the site or business where the accident took place. Claims are often going through both the workers’ compensation schemes and the courts, leading to increased costs and extended timeframes.
Workers’ compensation schemes may seek to recover costs from the host employer where the accident happened, while injured workers may pursue higher damages available through courts compared to the statutory schemes.
Ms Amos says it could be beneficial to refine tort law as it relates to the worker-to-worker area, as well as in areas affecting the leisure sector, without it being necessary to undertake the type of major reforms introduced two decades ago when public liability problems were greater.
“There isn’t the same level of escalation in claims cost and the same issues that there was with the previous tort reform,” she says. “But there are certainly areas that could be targeted and improved to address the issues that insureds are seeing.”
In the early 2000s the public liability market was so difficult that state governments introduced major reform. These were driven by several factors, including the collapse of HIH and a hardening global market.
ICA says it’s time to see if the current tort law and civil liability settings remain fit for purpose following changes since those earlier reforms. It has highlighted problems facing SMEs during the federal and NSW election campaigns.
State and territory governments should look to reform liability and procedure settings in a way that provides injured people with reasonable and fair compensation as well as an environment where insurers are able to provide premiums that are affordable while maintaining profitability, ICA says.
The group has also put the potential for a statutorily defined benefit frameworks for personal injury claims, like those in compulsory third party (CTP) and workers’ compensation schemes on the table.
“This could provide greater underwriting certainty, reduce claims costs and durations, improve health outcomes for injured people, and increase the affordability and availability of public liability insurance for businesses,” ICA says in its election policy document.
ICA’s Business Advisory Council, which was established after a report by consultant John Trowbridge on commercial insurance challenges, continues to look at SME public liability problem areas.
“There is limited capacity in some sectors of the public liability insurance market in Australia, with many operators in sectors like live music, amusements and caravan parks experiencing significant difficulty obtaining affordable insurance,” an ICA spokesperson tells Insurance News.
“However, public liability insurance does remain available and affordable to most businesses in Australia.”
Consulting and technology firm Xceedance says discussing options such as a statutory scheme is important, given pressures confronting many businesses and community organisations.
“A key issue to consider is that businesses, particularly SMEs, and organisations like sporting bodies and community groups, cannot operate without public liability insurance and the problems of affordability and availability threaten their ongoing viability,” Business Leader – Key Accounts Australia Prateek Vijayvergia tells Insurance News.
“Organisations can choose whether to insure their assets, like property and motor vehicles, and risks like cyber, but public liability is a contractual requirement for many so it’s a must have, not a choice.”
Xceedance notes that introducing national reforms is not easy given Australia is a federation of six states and two self-governing territories, and any statutory scheme is only as good as the underpinning legislation.
The Australian Live Music Business Council says claims often emerge well after the incident happened, with a three-year limitation period allowed for personal injury action. This makes it difficult for venues in defending cases.
The group would like to see changes that could alert venues and insurers earlier, with potential benefits to parties on both sides of a claim.
“If someone is injured, the quicker you can respond and look after them from that day onwards, the more you’re going to have a better outcome for the actual patron, and also reduced claims costs,” board member Andrew Bassingthwaighte says.