Mr HOCKEY (Minister for Financial Services and Regulation) (10:08 AM) —I move:

On 14 May 2001 the government announced a comprehensive and compassionate response to the failure of the HIH Insurance group.

Provision was made in the 2001-02 budget for more than $500 million to provide financial help to people who have valid insurance claims against HIH and who are enduring financial hardship due to its failure.

I am pleased to introduce the Appropriation (HIH Assistance) Bill 2001, which provides for funding to the extent of $640 million to be appropriated from the consolidated revenue fund for the government's HIH assistance scheme.

The funding for the scheme forms one of four important actions that the government is taking in response to the HIH failure.

The actions are:

· a package of $640 million in financial help for those HIH policyholders suffering financial hardship as a result of the HIH failure;

· the provision of an extra $5 million to the corporate regulator, the Australian Securities and Investments Commission, to help fund its investigations into the failure of HIH;

· the fast-tracking of legislative reforms to the general insurance industry—legislation giving effect to this is expected to be introduced by the end of the winter parliamentary sittings; and

· a broad ranging royal commission to investigate the failure of HIH and uniform state statutory insurance arrangements.

This means that people like Mr Jones—and this is a hypothetical example—who has been crippled with a debilitating disease that stopped him from working, can now receive the income he deserves from his HIH policy. That is because Mr Jones, who was an employee of a small private sector company, took responsibility for his own future and his family and bought a salary continuance policy from HIH—that is, an insurance policy that would pay him and his family an income if he ever became incapacitated.

Mr Jones then fell ill and his family relied on income from HIH. When HIH went into provisional liquidation on 15 March the cheques stopped. Under this legislation Mr Jones and his family are supported again.

The government's assistance scheme will also help those small businesses which through no fault of their own are now suffering financial hardship due to the HIH collapse.

For example, a hypothetical company such as Machine Group Ltd, a small business employing eight people, hired out equipment a couple of years ago that contributed to a workplace injury.

The business was sued, along with three other parties, for negligence. The case has recently been settled, with the company facing a liability of $150,000. The company was insured with HIH at the time of the claim. As the company has 50 or fewer employees it would meet the suggested criteria of the scheme and be eligible for assistance.

The government has been working tirelessly with the insurance industry to put the infrastructure in place to provide financial help to those people in hardship.

The government's decision to provide financial support reflects the very serious nature of the HIH failure and its widespread and severe impact on the Australian community.

There are many thousands of financial institutions regulated by the Australian Prudential Regulation Authority.

Its role is to oversee financial institutions by establishing prudential standards and ensuring, through regular reporting, compliance with those standards.

This process of supervision does not mean that the government is guaranteeing or underwriting the viability of each and every financial institution in any way. That would be impossible, and when this parliament passed the financial system reforms in 1997 and 1998 it was expressly rejected by both sides of the House.

The ultimate responsibility for the prudent operation of all financial institutions rests with the management and board of each institution.

Australian taxpayers do not guarantee the liabilities or assets of financial institutions, whether they are operating in Australia or are Australian financial institutions operating overseas. We do not guarantee bank deposits, superannuation funds, insurance policies or any other financial service. There are, however, some classes of insurance that are supported by state governments, and in the case of the HIH collapse those state governments have, in the main, stood by their obligations.

Nevertheless, in introducing the bill, the Commonwealth is responding to the financial hardship that many ordinary Australians are experiencing as a result of the failure of HIH.

A public company, HIH Claims Support Ltd, or HCS, has been set up to administer the support scheme under a contract with the Commonwealth. HCS is a subsidiary of the Insurance Council of Australia.

It is intended that payments under the scheme will be made from a trust fund to be set up by the Commonwealth and of which HCS shall be the trustee.

HCS will be a run as a nonprofit company and it will:

· assess whether claimants are eligible for help in accordance with the government's criteria;

· work with HIH's provisional liquidator and other insurance companies to manage and settle eligible claims; and

· make sure policyholders actually get the assistance the Australian community is providing.

In return for payment under the scheme, claimants will have to assign all rights in connection with the claim to the Commonwealth government. The ultimate effect of this is that the Commonwealth government will become the largest single creditor of HIH.

On 21 May I announced the eligibility details for financial help under this package.

Assistance will be restricted to Australian citizens or permanent residents, Australian small business proprietors—that is, businesses with 50 or fewer employees—and Australian based not-for-profit organisations.

The government's HIH assistance scheme will not cover some insurance that is mandated by state and territory governments. These are compulsory third-party motor vehicle insurance, workers compensation, builders' warranty, and compulsory professional indemnity insurance for legal practitioners.

The government believes that it is the responsibility of the states and territories to help people with claims on such policies affected by the failure of HIH.

The following categories are also excluded from the HIH assistance scheme:

· claims for reinsurance contracts or in the nature of a reinsurance contract issued by HIH;

· any business that is not an Australian business or does not meet the definition of a small business;

· claims where the insured was a director or officer or an associate of a director or officer (as defined under the Corporations Law) of any company within HIH three years before its failure; and

· claims where the insured was an individual or an associate of an individual, who was in a position to influence or advise the directors or officers of any companies within HIH three years before its failure.

In relation to claims involving local government, the Commonwealth will contribute to claims on a one-for-one basis with respective state governments which have legal responsibility for local government.

An appeal mechanism will be set up to consider disputes about the eligibility criteria and cases involving anomalies in the application of those criteria.

To qualify, the event that entitles the person to make a claim—for instance, the fire, the car crash, et cetera—must have occurred before 11 June 2001.

Anyone who has not taken out a new policy and is currently insured with HIH—except those people who are now insured with Allianz—should seek a new policy as quickly as possible, because events that occur after midnight 10 June 2001 will not be covered by this package.

In the case of `claims made' insurance, a claim must have been made against the insured, or a circumstance must have been notified to the insurer, before 11 June 2001.

The HIH assistance scheme will offer to claimants 100 cents in the dollar for certain claims, and will offer 90 cents in the dollar for other claims.

The claims that will be fully paid out include salary continuance, disability or income protection claims, personal injury claims, claims under home building or home contents policies where there is a total loss involving a primary place of residence and claims where the policyholder is an Australian based not-for-profit organisation.

In all other classes of claim in which the HIH assistance scheme applies, the government will pay 90 cents in the dollar. In some cases, eligibility will be subject to an income test.

The government sees these initiatives as critical to ensure that those people most in need get help as quickly as possible.

I remind the House that this HIH assistance scheme should not in any way be seen as a precedent for similar government financial assistance in the event of the failure of other financial institutions or another private sector company.

HIH is a special case because of the extraordinary nature of the collapse. As Australia's second largest general insurer, it was a company that only ever reported full-year audited profits. Whilst in some cases it was an insurer of last resort, its extensive professional indemnity and public liability lines provided enormous support to Australia's small businesses in particular, and its salary continuance insurance was vital for a number of Australian families, who may have resorted to welfare in the event of this failure. That is not an exclusive list of reasons, but just some of the reasons why this is a special case.

This hardship scheme is an act of a compassionate community. It is not the act of a government alone. It is a generous package made possible because the government is running budget surpluses. On this occasion, prudent financial management means we can offer generous taxpayer funded support to tens of thousands of Australians through this scheme.

I call on all members of this House to support the passage of this bill and in a timely fashion—certainly before 1 July—to ensure that claimants suffering financial hardship are not prevented from receiving this help.

I commend the Appropriation (HIH Assistance) Bill 2001 to the House and present the related explanatory memorandum.

Debate (on motion by Mr Swan) adjourned.