A parliamentary inquiry into small business insurance has asked for more information on the case for civil liability law reform, after the issue proved contentious at a hearing last week.

Insurance Council of Australia CEO Andrew Hall said the single most important recommendation the inquiry could make would be for a national review of civil liability settings.

“We’ve had reinsurers tell us that they view Australia now as the most litigious market in the world. If we think that we’re less litigious than the United States, we’re wrong,” he told the inquiry.

Mr Hall said the HIH collapse in 2001 drove previous reforms, but claims costs are now outpacing the consumer price index, pushed up by legal fees, expansion of psychological and worker to worker claims, and broader shifts in how courts apportion liability in insurance.

“Over the past year, professional indemnity has stabilised and public liability is easing for most businesses, but pressure remains in high-risk sectors like adventure tourism and live entertainment, where small operators face tight conditions and high premiums,” he said.

IAG’s Jarrod Hill – CEO of CGU and WFI – said there is an opportunity to improve efficiencies and reduce costs around liability claims, which are largely for bodily injury.

Mr Hill said about 60% of reserves set aside for future claims go to indemnity payments for injured parties, while the remaining 40% represents frictional costs.

“That is too high a weighting of the reserves, and the overall claims cost,” he said. “There’s an opportunity to create a more efficient overall legal framework and part of that would be tort reform.”

The Australian Lawyers Alliance told the federal inquiry it supports reform to claims handling and pre-litigation processes that speed up outcomes and reduce costs for parties, but it disputes the insurance industry case for broader tort reform.

Sydney barrister Andrew Stone, a former ALA national president, said claims have increased in areas such as sexual abuse or asbestos exposure as past injustices are addressed, and mental claims are increasingly recognised as people now seek help.

“If you view that as a more litigious society, I disagree with what your definition of a litigious society is,” he said.

More generally, there are no areas of rapid growth or “any greater generosity appearing out of the courts”, and lawyers pursue claims with merit, he told the inquiry.

Lawyers’ alliance national president-elect Michel Margalit told the inquiry people are often afraid to litigate and would prefer not to.

“It takes a lot of harm and a lot of wrongdoing for people to be actually willing to go ahead with putting their name to a case, and particularly given costs can be ordered against them,” she said.

“They only do it where they really have been harmed, in the majority of cases.”

The ALA’s submission included a report by economist and consultant Conrad Liveris, who made 12 recommendations. The inquiry committee has asked QBE, IAG and the National Insurance Brokers Association to respond to the proposals.

The lawyers’ group was asked to respond to an Australian Prudential Regulation Authority analysis of public liability and professional indemnity claims.

The Joint Committee on Corporations and Financial Services has also expressed frustration at a lack of data on the insurance experiences of individual industries, with only broad cross-sector product areas reported through APRA.

Committee chair and NSW senator Deborah O’Neill questioned insurers on their push to remove state taxes and charges on policies, as NSW considers changing its emergency services funding source to a property-based levy.

“The reality is, it’s one thing to recommend that those charges be reviewed, [but] the community’s expectations are that the provision of the services they need for effective functioning of their businesses and the community still have to be met, and met in a way that doesn’t disproportionately impact particular communities ” she said.

Groups appearing at the inquiry’s first two days of hearings last week – pressing for action to improve cover availability and affordability – included the Australian Tattooists Guild, Motor Trades Association Group, Australasian Music Publishers’ Association and the Outdoor Council of Australia. 

The committee has asked for replies to questions on notice by May 29, with further hearings expected. A final report is due by October 27.