The Federal Government has released the first report into section 54 of the Insurance Contracts Act. Conducted by former Australian Securities and Investments Commission Chairman Alan Cameron and Clayton Utz insurance lawyer Nancy Milne, the report was commissioned following long-held concerns that s54 adversely affects the cost and availability of professional indemnity (PI) insurance. 

The industry has generally welcomed the report’s recommendations, which recognise the need for “claims made” and “claims made and notified” legislation to be amended. PI insurance, directors' and officers' liability and other related covers are only written in a “claims made and notified” format. (For those non-insurance readers who are scratching their heads, this means the claim has to be made on the policy in force at the time the claim is made, not the policy in force at the time the negligent act occurred.)

Assistant Treasurer Helen Coonan said the issues surrounding section 54 are complex and will take some time to adequately address. The Government will carry out further public consultation once the amendments are available in draft form next year, with the final completed review ready for submission to the Government by the end of next May.

“The recommendations in the report offer a sensible approach to dealing with the problems that judicial interpretation of section 54 has caused for indemnity insurance classes,” Mr Cameron said. “Moreover, the recommendations maintain a balance between the interests of insurers, insureds and third party claimants.”

Insurance Council of Australia Executive Director Alan Mason says although the industry generally welcomes the release of the report, it only represents one-quarter of the changes needed to fully improve Australia’s PI crisis. “Improvements in the PI insurance market in Australia would only be realised with the implementation of the Trade Practices Act reforms recommended by Justice Ipp, the review of professional standards legislation, and the introduction of uniform proportionate liability provisions,” he said.

Mr Mason says the industry looks forward to helping ensure the amendments reinforce consumer and industry “confidence and certainty”.