The NSW Government should steer away from introducing a no-fault system to compensate personal injury victims, says Swiss Re New York Senior Economist Thomas Holzheu.

Speaking at last week’s Insurance Council of Australia NSW conference, he said no-fault schemes reduce litigation expenses in the short term but, don’t provide a long-term solution.

“In the long term, claims tend to raise again because behavioural changes – moral hazard and fraud – become more critical.”

Mr Holzheu’s comments come as NSW Premier Bob Carr is contemplating introducing a no-fault scheme for catastrophically injured people. The scheme will go before the NSW Cabinet in the next couple of months, and if implemented, will provide relief to badly injured people who are blocked from suing under tort reform changes.

“The Government is working on a detailed plan to deal with those hundreds of catastrophic injuries each year. It will see that, regardless of fault, those people are looked after,” Mr Carr said.

But Mr Holzheu says no-fault schemes “seem to provide only temporary effects”, and suggested NSW should look to the Canadian province of Ontario before introducing a no-fault scheme.

Ontario introduced a no-fault scheme in 1986, and while costs dropped initially, by 2002 it cost more to operate than other provinces with no schemes.  

Instead of opting for no-fault schemes, he says the industry “must better understand, monitor, and price for escalating liability claims costs”.

“If a peril grows too uncertain and its limits cannot be well defined by contract design and wording, insurers should cease writing cover.”