Mr JOHNSON (6:49 PM) —I am delighted to speak on this important Terrorism Insurance Bill 2002 and to have the opportunity to contribute to the debate of my colleagues in this parliament. The purpose of the bill is relatively straightforward, as the previous speaker, the member for Corangamite, has alluded to. It is effectively to set up a scheme for terrorism insurance and to establish a statutory authority, the Australian Reinsurance Pool Corporation, which will have the responsibility of managing the scheme.

The horrific events of 11 September 2001 in the United States changed the world in many ways. It is apparent to all in this country that the human tragedy and the devastation caused by those aircraft in those terrible attacks on the twin towers in New York has reverberated around the world. It is fair to say that the cost is in fact immeasurable. Clearly, the financial markets and the commercial world have been especially affected. The financial significance of the attacks was quite substantial. It was the worst ever single act of terrorism and had a major impact, in particular, on the global insurance industry. This government now has the responsibility of addressing the issues that have been caused by that terrorist attack.

In Australia, the result of that attack was the significant withdrawal of cover for terrorism risk by insurance and reinsurance companies. According to the Reinsurance Association of America, the expected losses from the 11 September attacks are estimated to be $35 billion to $75 billion—a figure that is difficult to comprehend; but those are the figures that have been provided. In his address to the Insurance Council of Australia Conference in August last year, the Secretary to the Treasury, Mr Ken Henry, spoke about those attacks and the impact in particular on the insurance industry internationally. Mr Henry, whose skills and experience in the Treasury related portfolio are pretty substantial, stated:

In Australia, there are around 150 private general insurers and reinsurers operating and employing some 35,000 people. There is no doubt that the general insurance industry is a substantial one, and it is a substantial contributor to the economic activity of this country. Mr Henry went on to say:

The change in the international environment has meant that some forms of insurance such as terrorism insurance—insurance that we take for granted—are simply not available today or are available only at premiums that are beyond the capacity of most organisations that would be taking out such premiums in the first place. These changes have had a major impact on business and commercial projects being undertaken. There have been reports that large enterprises are finding it not only impossible to get terrorism insurance but that, in turn, this was jeopardising future commercial arrangements and throwing major projects into substantial confusion.

Terrorism represents potentially tremendous losses with unpredictable frequency. The inability to address this problem of incomplete information means that insurers and reinsurers face enormous difficulties in determining appropriate premiums and writing insurance contracts for this type of risk. However, insurance companies are currently investigating all kinds of ways that could allow them to overcome these challenges. The initial impact of this market failure was particularly heavy on the aviation industry, and reinsurers and insurers generally gave notice that coverage for terrorist risks would be effectively terminated immediately.

The Commonwealth government and many other governments around the world have taken a course of action and have instituted arrangements to avoid a complete shutdown of the industry, which would be devastating to relevant economies. In Australia, this has been in the form of an indemnity to cover third-party terrorist risks. The withdrawal of insurance cover for terrorist risks has affected most insurance policies in Australia, not just, as I mentioned, those of the aviation sector. It affected the aviation sector in particular, but I stress that it is an issue that covers a spectrum of commercial organisations and industries.

The Terrorism Insurance Bill 2002 establishes a framework to implement the scheme for replacement terrorism insurance announced by the Treasurer last October. The development of the scheme follows calls from the community in particular for the government to intervene and to play a part in addressing these major challenges in the market. As the House would be aware, the government has consulted with the Insurance Council of Australia, major individual insurers, the Australian Banking Association, the Property Council of Australia, reinsurers and brokers. So it has consulted widely to develop arrangements that we now see in this bill—adequate arrangements that will address some of the major challenges confronting the country.

While there is no doubt that there are grounds for the government to intervene at this point, I would like to stress that terrorism insurance arrangements will not be open-ended. It is important that there is some kind of time frame for the government's intervention and for its cover. Intervention by the Commonwealth government on this issue is consistent with the need to maintain, to the greatest extent possible, private sector involvement; ensure that the risk transferred to the Commonwealth is appropriately measured; and allow the re-emergence of commercial markets in this area.

I want to refer to some of the main features of this scheme. These would cover commercial property and infrastructure facilities and would include associated business interruptions and public liability. The compulsory deeming of terrorism cover is essential to allow accumulation of a credible pool of funds within a reasonable period. Universal terrorism insurance is designed to avoid problems of undiversified risks and uncertainty as to who will be eligible for compensation in the event of a terrorist attack. The bill also establishes a statutory authority, the Australian Reinsurance Pool Corporation, that has the charter responsibility to provide reinsurance cover to insurers for losses that arise from a declared terrorist incident or activity.

Insurers who seek terrorism reinsurance through the Australian Reinsurance Pool Corporation will retain part of the risk of liability from a declared terrorist incident. The Treasurer will set the retention by issuing directions to the corporation. Initially, it is anticipated that the retention will be set at some $1 million per insurer per annum and $10 million across the industry per incident. The Treasurer will also be able to direct the corporation on premiums to be charged for the reinsurance. Premiums collected from those insured will be paid by insurers to the scheme in order to fund some $300 million. So it is a pretty substantial figure.

The government's objective is to operate the scheme only while terrorism insurance cover is commercially unavailable. As such, reviews of the scheme, of the international climate and of the global terrorism risks will be conducted every two or three years. It is important to assess the state of the market and the state of the international community at this difficult time and in the foreseeable future. The uncertainty in a market makes it impossible to stipulate the details or the timing of the wind-up of the scheme and of the use of the funds accumulated by the scheme. But, as I alluded to earlier, it is important to stress that this is not something that would be indefinite, which of course would be completely unsustainable. Components of the scheme—including pricing, classes of insurance required to provide terrorism risk cover and the level of underwriting available—are flexible. They are not set in legislation; they are not set in stone. This is very clearly to encourage a re-emergence of the commercial market.

I want to touch very briefly on my electorate of Ryan. A significant number of local constituents have called me in relation to this issue. There is particular interest from substantial developments that are taking place in the Ryan electorate. It is a growing area, there is significant commercial growth throughout the Ryan electorate, and so this bill has an enormous positive impact on the people of Ryan and particularly those in the area of commercial development and related infrastructure facilities development.

Following the Treasurer's announcement on the scheme last year, the Property Council of Australia chief executive, Mr Peter Verwer, was reported as saying that developers could now proceed with confidence. He said:

The Treasurer's announcement was also welcomed by the Insurance Council of Australia. ICA Executive Director Alan Mason stated:

In conclusion, I want to reassure all those in my electorate who have contacted me—the significant commercial developers and significant commercial investors who will find this bill very helpful, very relevant and very timely—that the government's eye is very much on the ball. I commend the bill to the House.