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Tuesday, 13 March 2012
Page: 2747


Mr NEUMANN (Blair) (18:31): I speak in relation to the Social Policy and Legal Affairs Committee report In the wake of disasters—Volume 1: the operation of the insuranceindustry during disaster events, which was presented in the federal parliament. My electorate of Blair had 1,500 homes in Ipswich and 473 businesses, many agribusinesses, affected by the January 2011 floods. In the Somerset region, which I have the honour also of representing in this parliament, 530 homes were flooded and 400 small businesses, many agribusinesses, were also flooded. So this is not just political; it is personal to me and it is personal to my local community. The insurance industry in this country is a very large sector of our community. It has assets of about $113.9 billion and had revenue in the 2011 year of $42.1 billion. The industry itself makes a profit of $5.6 billion per annum—they are the 2011 figures, at least. The major players are Suncorp, IAG, QBE Insurance Group and Allianz Australia. They are the main players in the industry.

The 2010-11 floods saw, really, a situation where there was flooding across the country—in WA, in rural Victoria. We saw cyclones up in North Queensland, with Cyclone Yasi in February 2011. We saw floods wreak havoc on Toowoomba first, the Lockyer Valley, the Brisbane Valley, Ipswich and then Brisbane. The effect on the lives of people is incalculable. The mental health and emotional impact almost exceeds the financial impact on people's lives.

There was a deluge in complaints about the insurance industry. Sadly, I have to say, it fell largely on deaf ears. People felt brutalised by the floods and national disasters, and then they felt brutalised by the claims process that they had to endure. There are 13 recommendations in this particular report, and I would urge the government to take seriously those recommendations, because if taken up they will make a significant difference. The consumer protection in relation to the insurance industry is particularly poor. The enforcement and sanction is weak. And the information to the consumer is simply not available readily. Consumers are unaware, mostly—in fact, many times, until they have consulted their own policies. There are changes that need to be made. One of the most egregious examples we discovered in our investigations was the voluntary code of practice. It is voluntary and not all insurance companies adhere to it or sign up to it. It is the General Insurance Code of Practice and it has a range of consumer protections and standards. But, as we found through the floods and the natural disasters, many of the time frames are honoured in the breach rather than the observance. In fact, in 4.3 of the General Insurance Code of Practice there is a get-out-of-gaol-free card for the insurance industry and they used this to a large extent on many occasions. When we asked questions about the code during the inquiry, most people said, 'What's that?' I have to admit that the insurance industry responded by saying that the General Insurance Code of Practice is now going to be complied with—and I welcome that—except in the most extraordinary circumstances. I do not think that is good enough and in our recommendations we do not think that is good enough. We have recommended that there be a standard definition of flood, that there be a standard cover, including flood cover and full replacement in the event of total loss.

We have recommended to the government that the Insurance Contracts Amendment Bill 2011 be enacted and we have recommended that there should be legislation to remove the exemption of general insurers from unfair contract term laws. The problem is that the insurance industry has a number of exemptions and the sanctions with respect to breaches and penalties for the breaches of the General Insurance Code of Practice are minimal. In fact, I was really struck by the evidence from Mr Price, an ombudsman with the Financial Ombudsman Service. The role of the Financial Ombudsman Service is to monitor and report a failure by an insurance company and to correct a breach of the code. There is a code compliance committee, which may dismiss the FOS findings or request FOS to reconsider further consultation with insurers. Mr Price's evidence struck me when he noted that since 2004 sanctions have not been utilised—and those sanctions are minimal. The sanctions include a requirement that particular rectification steps have to be undertaken within a specified time, that a compliance audit be undertaken, that corrective advertising and some publication on the insurer's noncompliance be undertaken. Since 2004, no sanctions have been utilised during Mr Price's time with FOS.

In fact, when you look at the evidence that was given to the inquiry about the monitoring and the enforcement of the code in chapter 3, there are a plethora of examples of insurance companies breaching their own codes of practice. On many occasions, and the evidence is there to be seen by people who care to look at the report from page 26 onwards, we found that the insurance industry failed to comply with the claims handling processes that they are supposed to comply with under their own code of practice.

The amendments we recommend will not change the experiences of flood victims in Ipswich and the Somerset, but we can learn from those experiences to make sure that claims in the future will be protected. I cannot conceive a circumstance where an insurance company—and they are exempt from the duties of utmost good faith—should be allowed to go on. We have recommended that legislation be enacted to make a breach of the duty of utmost good faith a breach of the Insurance Contracts Act. I do not think they should be treated any differently from any other company or corporation. We have recommended there be a tough cop on the beat. We have recommended that the Australia Securities and Investments Commission regulate insurance claims handling. We think naming and shaming is what should happen if people breach, not this generalised approach that we have seen in the past. We want clear and comprehensive information provided to make sure that people understand the internal and external dispute resolution procedures that are there. We want to make sure that there is a consumer advisory position within the Financial Ombudsman Service as well. We want to make sure that legal aid services are adequately funded. One of the problems that came up was the need for 1300 calls. Many people had mobile phones in these circumstance but could not use them because they ran out of charge. That was the problem. The cost of using mobile phones during these flood disaster events was a problem. We have recommended that the government investigate ways to reduce the cost of 1300 calls from mobile phones during natural disasters.

We need to empower consumers. We need to put teeth in any legislation. We need to make sure that someone or some entity looks at this industry and makes sure this industry operates fairly, equitably and openly. Transparency and accountability have not been the watchwords of the insurance industry in the context of natural disasters. I admit there are many cases where the insurance companies did the right thing—and we came across that. I can think of one meeting where we had about 20 people who lived in Fernvale and Lowood in my electorate. We asked people to put up their hands to indicate who had been paid out and who were happy with their insurance service. A number of people put up their hands, but many of their neighbours and friends did not know they were not covered. Sometimes you almost need a doctorate of law to understand that you are not covered for a flood. Many times people thought they had been covered but found they were not.

We are recommending many changes here. A key fact sheet is critical. We are going to make sure this is an ideal vehicle for explaining the standard cover and to communicate that and any derogation from the standard cover in respect of flood. We have recommended the expedition of the passage of the Insurance Contracts Amendment Bill.

There are many changes that need to be made. There are many lessons that need to be learnt. I read an editorial from the Queensland Times in the aftermath of the 1974 flood. In those days Ipswich had about 74,000 people. The flood then was higher but the impact was not as great because Ipswich now has between 175,000 and 180,000 people. I remember the 1974 flood well. My parents' house was under eight foot of water. I remember it vividly. I remembered the editorial and I found it not long after the 2011 flood. The editorial in the Queensland Times was about learning the lessons from the aftermath of the flood. Tragically, shamefully and sadly, we did not learn the lessons and we let the insurance industry develop and operate with minimal regulation and minimal accountability. It has taken this event to flush out those lessons. It has taken this event to make sure that the lack of accountability and that unconscionable approach in the way things have operated are removed in the future.

We need to get rid of the confusion around the definition of flood. We need to make sure that people's rights are enhanced and we need to address the failure and potential market failure of insurance premiums. There are many things that I think this government has done in this area in terms of the reviews that have been undertaken. I commend Minister Shorten, Minister for Employment and Workplace Relations, who has been a leading advocate in this area. He came to my electorate. We put on insurance forums and, sadly, only the CEO of the Insurance Council of Australia turned up, despite the fact that we urged all the CEOs of the insurance companies to come. I think it was a terrible mistake that they did not front up and deal with their customers and clients. That was in Ipswich and I did the same thing in Fernvale, where Senator Joseph Ludwig turned up. Again, no insurance company CEOs or representatives from the Insurance Council turned up.

The insurance industry need to know they are part of the community. They need to know they have a communitarian and social obligation. They cannot operate in a vacuum and they need to deal with their customers fairly and reasonably. Rural and regional people have been treated in a shabby way just as people who live on the Brisbane River in inner city Brisbane have been. The devastation that people suffer and the trauma and the loss that they endure must not be exacerbated in the future by what we saw during this inquiry.

This is an opportunity for the insurance industry. If the government takes the recommendations seriously and acts upon them and if the insurance companies do not get it right and act appropriately and in a communitarian way then the consequences for the insurance industry will be enforceable instruments, greater regulation and punitive legislation. That is the only alternative. It is not just a matter of last chance here; it is a matter of them taking seriously their responsibility as good corporate citizens. I commend the committee. I thank the secretariat. I thank the chair, the member for Moreton; the deputy chair, the member for Pearce; and all those people present on the committee. I commend this report to all those who might be listening.

Debate adjourned.