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Tuesday, 25 May 2010
Page: 4093

Mr HARTSUYKER (8:15 PM) —I welcome the opportunity to speak on the Insurance Contracts Amendment Bill 2010. The coalition supports these amendments to the Insurance Contracts Act. The amendments arose from a process started by the former government—the Howard coalition government—and will aid the efficiency and coverage of insurance laws in Australia.

In government, the coalition held a review into the operation of the Insurance Contracts Act in 2004, which concluded that the act continues to operate effectively as an instrument regulating the formation and operation of insurance contracts. However, the review did recommend some minor changes which would be beneficial, given the passage of time since the act was originally enacted, developments in the insurance market since that time, and judicial interpretation of the act’s provisions. The coalition released a draft exposure of amendments to the Insurance Contracts Act in February 2007 with the intention of working with the industry to refine the legislation. To the current government’s credit, it upheld this process and has brought forward a bill that has been accepted by those in the industry and consumer groups as comprising important amendments to insurance laws.

The bill makes changes to rules regarding third party beneficiaries, the duty of good faith, bundled insurance contracts, the duty of disclosure, and remedies, each of which I will discuss in turn. The bill also makes some minor amendments to laws regarding subrogation, and the electronic communication of insurance contracts and contractual obligations. Firstly, new definitions will be inserted into the Insurance Contracts Act to ensure that individuals who have rights under a contract of insurance, but who are not the insured, have access to particular rights and obligations currently held by insureds. This includes giving third parties the right to claim against the insurer where the third party has a claim of damages against the insured, who cannot be found or who has died. ASIC will now have powers to bring representative actions on behalf of third-party beneficiaries, and will have the power to commence or continue representative action on behalf of an insured where that party has suffered damage or there has been a breach of the Insurance Contracts Act.

Remedies for misrepresentation and non-disclosure will be available in relation to contracts of life insurance offered as part of a group scheme and unrelated to superannuation. In terms of the duty of utmost good faith in insurance contracts, the act will be amended to ensure that a failure to comply with the duty is a clear breach of the act. This duty is also extended to third-party beneficiaries where the contract has already been entered into by the respective parties.

The bill will allow bundled insurance contracts that include insurance cover for compulsory workers’ compensation purposes and cover for liability to employees at common law arising from employment-related personal injury exempt from ambit of the Insurance Contracts Act. However, bundled contracts will be ‘unbundled’ so that a contract of insurance that includes elements of cover exempt from the Insurance Contracts Act as well as cover that falls under the Insurance Contracts Act is treated as exempt from the act only in respect of the exempt elements.

The bill also makes a number of changes to the duty of disclosure obligation placed on insurers. For instance, the mixed objective-subjective test in section 21 for whether an insurer has breached a duty is clarified by including a non-exclusive factor to which the court may have regard when determining whether a reasonable person in the circumstances could be expected to know a matter was relevant to the decision of the insurer. This factor involves the nature and extent of the insurance cover under the contract. Insurers will be prevented from asking ‘catch-all’ questions relating to the risk of the contract as a means of avoiding the duty, and must ask specific questions with relation to each aspect of the risk involved in the contract. This must occur both on formation and renewal.

With regard to remedies, the bill makes a number of minor changes. These include having the insurer change the expiry date of a life insurance contract where that date has been incorrectly stated by the insured and extending the framework for the cancellation of general insurance contracts to include life insurance contracts. Finally, an insurer will be able to avoid a contract to which these remedies apply on the basis of non-disclosure or misrepresentation only if the insurer would not have entered that particular contract on any terms.

I commend these amendments to the Insurance Contracts Act, but I also question the government’s commitment to reform of red tape and taxation treatment affecting the insurance industry sector. We all know that the Rudd government loves tax. Tax allows them to spend all the taxpayer money they want and to win votes, and when the money runs out they simply introduce new taxes. Is it any wonder that the recommendation in the Henry review, which offered real reform of taxation treatment afforded to various entities in Australia, were ignored? It is recognised by most involved with the industry that taxation collected on insurance contracts involved too much of a regulatory burden on insurers, and this is preventing Australians from accessing much needed levels of insurance.

I have mentioned many times that insurance is a positive product, the purchase of which we should be encouraging. It is not like smoking, for instance, where it could be argued that there is a community good in discouraging it. Insurance is a product—a service—which we should be encouraging the consumption of. It is quite a ridiculous situation where effectively we are levying extremely high rates of taxation on insurance, which is really counterproductive. We should be encouraging the community to have a greater take-up of insurance, not putting roadblocks in the way. We have a situation where effectively we are charging higher rates of tax on insurance products compared with similar services out in the market. We are effectively taxing the seatbelts at a higher rate than we are taxing the car, and everyone would agree that the installation of seatbelts in a car is something we would encourage. We should not be having that effect on insurance—actually discouraging people to take it up.

Indeed, these very high levels of taxation and the high cost of insurance are a major deterrent to the take-up of this very important service. But, unfortunately, our state governments are very, very dependent on the cash flows that are provided by insurance. For example, in Victoria 10.1 per cent of all state taxes collected in 2006-07 were taxes on insurance. In New South Wales that figure was 6.9 per cent.

The coalition introduced the GST, with the states agreeing that inefficient state taxes would be abolished. Unfortunately, many inefficient state taxes, such as insurance taxes, remain, and they continue to push up the price of premiums. It is absolutely amazing to see what this has done to the cost of premiums. For homeowners in New South Wales, for instance, the price has inflated by some 43 per cent as a result of insurance taxes. Business premiums have increased by 65 per cent as a result of taxation.

Ken Henry followed a trend of many reviews of taxation at both Commonwealth and state levels by making recommendation 79 in his report, which states:

All specific taxes on insurance products, including the fire services levy, should be abolished. Insurance products should be treated like most other services consumed within Australia and be subject only to broad-based consumption tax on consumption.

But, as with 136 of Mr Henry’s recommendations, we have no idea what the Rudd government thinks, because they have decided to shirk any real tax reform and continue with more populist policies rather than address the very difficult issues of genuine reform within the taxation system. We have a situation where the recommendation in the Henry review was not adopted in the review and the very important issue of taxation on insurance was not addressed.

Insurance companies are involved in the financial future of Australia and encouraging people to consume insurance is absolutely vital. The government’s plan for the mining tax first appeared in the press on 13 April, and since that date resources stocks have plummeted in value. We have seen resource stocks collapse by over 20 per cent in value since the mining tax was leaked to the press. This is over $90 billion being ripped out of the savings of Australians’ superannuation accounts. The government has been out there blaming the performance of Australian shares on the situation in Greece, but this ignores the fact that in recent times the share market has acted as a safe haven for foreign investors, who are now staying away because of the perceived sovereign risk that the Rudd government has placed on the market.

The Rudd government is also attacking foreign investors. How ironic is it that the government has finally responded to the Johnson review about turning Australia into a financial hub and encouraging foreign investment whilst at the same time it is effectively telling foreign investors in New York and London that Australia does not want them here; that we are going to impose this massive great big new mining tax, and that that mining tax will be effective retrospectively? It will have a massive impact on our sovereign risk.

The DEPUTY SPEAKER —The member for Cowper has been given a fair bit of licence. He is way off the bill. It is getting late; could you return to the bill before us.

Mr HARTSUYKER —Shall I return to the bill?

The DEPUTY SPEAKER —That would be really good!

Mr HARTSUYKER —Indeed I will, because insurance companies depend on return on investment for a very large part of their income stream. And that return on investment is a factor in determining their ability to service premiums and so on. So the potential adverse impacts of that tax which I referred to previously, on investment returns for insurance companies, is an element that is relevant to insurance. Can I say, in conclusion, that we certainly concur with the legislation that has been put before the House. Would you like me to continue talking?

The DEPUTY SPEAKER —I just wanted you to get back to the bill because I will have to cut you off at 8.30.

Mr HARTSUYKER —We certainly agree with this legislation that is before the House. It has the support of the coalition. It is important, as with all legislation, that it be reviewed from time to time to ensure that it is up to date with the needs of the industry. We live in a very dynamic time for financial markets and it is important that our insurance products meet the needs of a modern society. So it is with great pleasure that I commend the bill to the House.

Debate (on motion by Mr Dreyfus) adjourned.