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<P>Professions urge ministers to act now</B></FONT><SPAN></SPAN></P><FONT face=Arial size=3>
<P>Chris Merritt, Legal editor<BR>28/03/2003 </P>
<P>State and federal governments are coming under intense pressure to act on the crisis in the market for professional indemnity insurance, as they prepare for next Friday's summit of insurance ministers.</P>
<P>National bodies representing most of the professions have written to all state premiers warning that the PI crisis has been caused by a serious market failure that needs urgent attention.</P>
<P>They have urged the premiers to introduce two complementary reforms to the legal system that are intended to help persuade international insurance companies that they can safely return to the Australian market.</P>
<P>Those reforms are the introduction of the doctrine of proportionate liability in cases involving economic loss, and the national extension of professional standards schemes.</P>
<P>These state-based schemes cap the potential liability of participating professions in return for mandatory levels of insurance cover and improved standards of service.</P>
<P>Just two states, Western Australia and NSW, have adopted both reforms, and while the commonwealth is undecided about professional standards schemes, it has endorsed proportionate liability and is considering the best way to make the change.</P>
<P>Yet even among those states that are moving to proportionate liability, differences are emerging.</P>
<P>NSW and WA have adopted a system of proportionate liability that differs from the one in Queensland, where it will apply only to legal disputes that are worth more than $500,000.</P>
<P>In their letter to the premiers, the professions warned that all jurisdictions needed to embrace both reforms in order to make the quickest impact on the market for professional indemnity insurance.</P>
<P>The federal government came under renewed pressure on this issue during the week when WA called for federal action to close a loophole that is reducing the impact of the state's capping scheme.</P>
<P>The WA Attorney-General, Jim McGinty, said state cabinet had decided on Monday to reinvigorate its professional standards scheme in an effort to ease the insurance crisis for the professions.</P>
<P>But unless the commonwealth took complementary action, the state scheme would be ineffective, he warned. </P>
<P>He said WA had reappointed two state representatives to the Professional Standards Council that operates the capping schemes in NSW and Western Australia and planned to make a number of improvements to the state scheme.</P>
<P>"We wanted to make sure that we had done everything at a state level that we could to enable professional standards schemes to work, and the ball is now in the court of the commonwealth," he said.</P>
<P>"If the commonwealth don't come to the party as well, it is clearly their problem. </P>
<P>"We will have done everything we can to facilitate it," Mr McGinty said.</P>
<P>He said a consistent national approach to proportionate liability and professional standards schemes was highly desirable, "but it does not look as though it is going to be achieved".</P>
<P>Mr McGinty said the question of whether there would be a national expansion of the professional standards schemes "is really a matter for others to decide. We simply want to make sure that it is available" in Western Australia.</P>
<P>"We are taking a view that we don't want any impediment to business efficiency in terms of PI insurance," he said.</P>
<P>"The key national consistency argument is that we don't want the [WA] scheme to be frustrated by the failure of the commonwealth to amend the Trade Practices Act" to close a loophole that allowed plaintiffs to avoid the state cap and seek unlimited damages under federal law, he said.</P>
<P>Even if other states rejected the need for professional standards schemes, Mr McGinty said, the commonwealth should still amend the Trade Practices Act so it did not undermine the legislative intent of those states that favoured capping schemes.</P>
<P>"If [the other states] don't have that legislation or don't wish to go down that path, well, so be it."</P>
<P>Mr McGinty's call for commonwealth action comes soon after the Institute of Chartered Accountants urged the commonwealth to show leadership on the issue and avoid a repeat of last year's wave of inconsistent tort reforms.</P>
<P>It also follows this week's warning from the insurance industry regulator that professional indemnity insurers will be forced to raise their premiums even higher to prevent more HIH-style collapses.</P>
<P>The Australian Prudential Regulation Authority said that insurance companies were not charging enough.</P>
<P>When the professions' national bodies wrote to the premiers, they included background material which they said "demonstrates beyond doubt that the professional indemnity insurance market is hemorrhaging".</P>
<P>"The number of insurers offering PI insurance has collapsed, businesses are being refused cover, subjected to increasingly tight restrictions and are being forced to respond by withdrawing high-risk professional services to consumers," they wrote.</P>
<P>Their letter said that proportionate liability alone would not be sufficient to resolve the PI crisis.</P>
<P>It needed to be accompanied by the caps on liability contained in professional standards schemes.</P>
<P>"The introduction of proportionate liability will improve corporate governance by encouraging directors and management to be more diligent," the letter said.</P>
<P>"Over time this should also encourage insurers back into PI insurance, as professionals will no longer carry liability rightfully resting with others who have caused economic loss.</P>
<P>"However, insurers advise this second benefit of reduced premiums may take five to seven years, due to the 'long tail' nature of claims and the fact that new state laws and commonwealth amendments would be tested through the courts," the letter said.</P></FONT>
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