Yesterday, Internet company Sofcom, which announced it plans to appoint a liquidator and wind up the company, became the latest to place the blame for its position squarely at the feet of the current insurance environment.
According to information obtained from the Insurance Council of Australia, professional indemnity insurance has been affected by some legislation and High Court precedents, which have all added to premium increases.
"Lower investment returns in recent years, together with a poor loss ratio, has meant that premiums have risen," the research found. "Insurers have to contend with varying state laws and the ever-present nexus between state and federal laws, which factor greatly into the process of predicting future levels and incidence of loss."
Peter Mann, insurance partner at law firm Deacons, said there had been a trend of increased litigation and increased payouts. This means that insurance, such as public liability cover, may become harder to get and be more expensive.
Mann said companies, such as IT integrators, may also want to look at the contractual arrangements they enter into with their customers. For example, there may be contractual terms in those arrangements which include indemnity clauses where they might actually be attracting liability to themselves, or passing off indemnity to another party.
"Risk management is always an issue--they should be aware of the range of liabilities that they could be taking on in respect of a particular job," Mann said.
A spokesperson from licensed insurance company Chubb Australia said professional indemnity insurance covered the failure of professional duty of care to others. For example, a specific technology service or product provider to third parties or customers.
"Most IT&T occupations are insurable if they provide IT&T solutions to others," the spokesperson said. "There are some products and applications that create a greater risk profile. These include aviation related solutions, large product independence systems integration companies, ERP firms [and] large development projects, [such as a] project that's greater than AU$10 million in value or 18 months implementation schedules."
The spokesperson said there were trends in Australia at the moment which showed a hardening of the insurance industry, which had resulted in increased premiums across all product lines, particularly professional and general liability. "We are also seeing reduced capacity and restricted risk selection," he said.
Chubb Australia's spokesperson also said that it had seen a huge increase in performance failure, related to allegations and claims in the last 18 months. Among the reasons he cites for this were an increase in business partner litigation, arising from customers' increased willingness to sue long established business partners for performance failure problems. He also said that dramatic increases in the average contract size, a trend towards companies outsourcing IT and networking to third parties, and an increase in contract length as contributing factors.
In a statement to the Australian Stock Exchange yesterday, Sofcom said: "The company understands that this position has been brought about by the current restricted underwriting environment which is being experienced in the insurance industry in general and is in no way a reflection on the Board or management of the company."
"The decision of the Board was made after an exhaustive search by management to obtain directors and officers insurance cover post 30 June 2002 proved unsuccessful," the statement added.
What is now being pulicised about the IT industry has been happeningn in the engineering industry for two years now. I run a small engineering & IT business and have been hit with over 400% increasdes in the last two years.
One option being seriously consdiered by myself and other small businesses is not to insure. Sure that cuts us out of some larger contracts which require insurance as a contract condition, but otherwise the premiums are unpayable.