Outdated civil liability laws, soaring legal costs and red tape are pushing up insurance costs for small businesses, the Insurance Council of Australia says.

In submissions to a federal parliamentary inquiry into small business insurance, ICA calls for several reforms, including caps on legal costs, and a national review of civil liability laws to ease claim pressures.

It says “expansive judicial decisions, a more litigious society, an active plaintiff law firm and third-party litigation funding environment, and increasing claims costs” have emerged in the 25 years since the last significant review of civil liability settings.

ICA CEO Andrew Hall says money that should be going to injured people is eaten up by legal costs, delays and bureaucracy.

“It’s been a quarter of a century since anyone properly looked at these laws, and the case for reform is overwhelming,” he said.

“Well-targeted reform can bring costs down while still making sure injured people get fair compensation, and that’s the outcome we want to work with governments to deliver.”

A submission on public liability says reinsurers have raised concerns about Australia’s civil liability settings, and ICA’s reform proposals would address claims costs related to increasing legal fees, a surge in psychological injury cases and the impact of worker-to-worker claims.

ICA also wants “fairer” government procurement rules, so small businesses are not forced to take out more insurance than a job requires or accept liability for risks they cannot cover against.

It wants governments and councils to regularly review insurance requirements in their standard form agreements, and to stop making small business, community and non-profit groups sign agreements that contain clauses requiring them to indemnify the authority for any future liability or claim from a third party.

“These contractual indemnities can unreasonably transfer financial liability and risk to these businesses and organisations ... Further, any claims arising from these extended contractual indemnities would typically not be covered under their public liability insurance policy.

“Procurement practices should cease using contractual arrangements that unreasonably transfer liability and insurance risk.”

A professional indemnity submission says government building projects often impose onerous insurance requirements, such as unlimited cyber coverage or naming government agencies and clients on policies.

This “in effect requires these businesses to obtain insurance to cover not just themselves but also the government entity”.

ICA wants all states and territories to follow Queensland, which is alone in explicitly prohibiting contracting out of proportionate liability for professional service contracts.

And it wants funded risk management programs to reduce SME exposure, and a national ban on claim farming.

The ICA submissions, including earlier ones on cyber, business interruption and workers’ compensation, are available here.

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