PROFESSIONAL indemnity is one of the crises that has failed to capture the imagination of the very people who will end up being affected – consumers.
While the skyrocketing insurance levels of all manner of more retail-focused areas such as riding schools has captured headlines, few seem to care about the accountants, lawyers or doctors feeling the pinch in this respect.
Until more recent weeks, that is, as we’ve started to see doctors threaten to close down practices or withdraw from certain specialist areas.
Nothing wakes up the public more than news that an obstetrician won’t deliver babies because he or she can’t get insurance.
But it is not just a withdrawal of services that affects mums and dads.
It is also the rising costs associated with PI cover that will slowly add to the cost base of all manner of products because advisers will either add it on to their costs or they will go out of business and the resulting loss of competition will have the same impact.
The Institute of Chartered Accountants provided an excellent example of this.
One of its members has seen this type of insurance jump from $16,000 to $60,000 in just two years.
The accountant has made no claims during that period yet the price of his insurance has rocketed, even though he has halved the amount of coverage he receives from that premium (from $6 million down to $3 million) and has to pay almost double the excess.
Part of this will be State stamp duty, which is a proportion of the premium and has also risen by 25 per cent in the most recent State Budget.
In summary, his insurance costs have risen from 0.65 per cent to 2.5 per cent of his annual fee income.
These are just numbers and it may seem easy for consumers to think that it is someone else’s problem but it isn’t.
Firstly, the worst affected are the smaller advisers who do not have the punch to negotiate better deals with insurers.
And these advisers tend to service the small to medium end of town that keeps the big end of town honest and better spreads their locally-generated wealth into the community around them.
This is the reverse of the trickle down, as yet another cost rise for these businesses, many of which have never made up the GST costs they decided to absorb in the first instance and still pay through the higher level of reporting required.
So it is good news to hear that the Federal Government is appearing to make some headway on this by high-lighting New South Wales legislation, which is similar to that proposed in WA, as something that could work nationally.
Where the Federal Government fits in is both to shepherd the States through this process and amend the Trade Practices Act so that lawyers, ironically some of the professionals who will benefit from this, don’t use that as a loophole during their endeavours to do their best for their clients.
This is very encouraging but only goes to show the calamity that can occur when artificial factors affect the market – such as insurance companies seeking enormous growth and instant profits to satisfy the stock market and justify ridiculous executive lifestyles.
The structural change that is taking place might seem damaging but, if the various governments can get this right, the pain might result in a system more resilient to the likes of an HIH.
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