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Tuesday, 22 June 2010
Page: 6239


Mr RIPOLL (7:56 PM) —It is a pleasure for me to speak on the Insurance Contracts Amendment Bill 2010 for a range of reasons. One is obviously because I think insurance contracts are a very important part of our legal and financial framework in this country and also because I chair the Parliamentary Joint Committee on Corporations and Financial Services and it is something that comes under our purview from time to time. The provision of financial services are always of interest to the committee—and no less this bill.

At the outset I would like to congratulate the minister responsible for these amendments, the Hon Chris Bowen, who is the Minister for Human Services and also the Minister for Financial Services, Superannuation and Corporate Law, for his ongoing good work in this area.

This bill will give effect to a number of recommendations of the review panel that was appointed to review the Insurance Contracts Act 1984. While those changes are largely technical in nature—as are many of these types of amendment bills—they are also very important because they bring about necessary change and updating of important legislation to make sure that government responds to market condition change. They also make sure that the legislation and regulations that we have keep pace with consumer markets and developments in judicial areas since the enactment of the original bills, which often and regularly become out of date depending on change conditions.

This bill will streamline a number of requirements and address some anomalies in the regulatory framework, which will be of benefit to not only consumers but to insurers as well. I know that Deputy Speaker Scott would agree with me in how important it is to get the balance right between the consumer protection regime that we have in this country and the services provided by insurers in this area.

These measures have been subject to a range of consultations. In some areas the review panel’s recommendations have also been modified to take account of those issues raised in those consultations, which is part and parcel of the work that this government has always been committed to. In the approach we have taken to financial services reform right across the board, we consult and make sure that the amendments and changes that we make to regulation are in line with what is required by the sector, in line with what consumers need and in line with what is best practice. The government really does make amendments in view of the most appropriate regulations that you can bring forward, rather than just more regulation.

Regulation, compliance and the red-tape burdens that exist are issues for small business and for business more generally. When the Rudd Labor government came to office in 2007, it made a commitment to reduce that compliance cost burden on small business, on insurers and on a whole raft of people in business, because we understand just how important that is. It is important to those businesses because it means they can provide their services under better, more cost-effective arrangements. What it means for consumers is that they can get better value. So I am very pleased to support these changes.

The Insurance Contracts Act 1984 is the primary source of regulation for the relationship that exists between insurers and those that are insured. It regulates matters such as the duty of disclosure of those who are insured, the duty of utmost good faith and remedies for nondisclosure and for misrepresentation. The overall intention of the act is to strike a fair balance between the interests of insurers, those insured and other members of the public. That is the right approach and the right outcome, and I congratulate the review panel for getting to that position and making sure that the balance is right, which is appreciated by everyone in that sector.

This bill gives effect to a number of recommendations that flowed out of the review of the Insurance Contracts Act, which commenced under the previous government. When good work and reviews have been done, regardless of when they began, the important role that this government has to play is to ensure that process continues and we take action and do something about those outcomes. I am also very pleased to say that the review panel did not find any major shortcomings in the way that the act operates, but it did recommend a number of changes to take account of market developments, of changes in the way things are done and of judicial interpretation since the original enactment of the act. It is good that is the case and we can follow through on those, but it is also heartening to know that no major problems were found with the way that the act operates.

The changes that we are putting forward in this amendment bill are largely technical in nature. They do not make any wholesale changes to the act itself. Nevertheless, they do offer improvements that will enable the act to work more efficiently and productively and to provide better outcomes for insurers and the insured. It will correct a number of anomalies that exist, and correcting those anomalies will benefit insurers and the general public as well. It is a great outcome for both sides.

Insurers were particularly keen on reform and some changes in this area. They were particularly keen to see that the bill progressed, because it will remove a number of legal impediments that would otherwise exist in dealing with customers in online systems. We need to appreciate in this place that technology does not stand still. We are often a little bit slow to act at a parliamentary level in terms of technological change, but we need to act swiftly when that change has either a judicial bearing or a bearing on efficiency in a particular sector. This amendment bill makes sure that regulation keeps up with technological change. Many people are now doing business directly online, and we need to make sure that legislation keeps up with that.

It is important to say—and I have mentioned it a couple of times already, but I want to say it again—that extensive consultation did occur. It is important that happens. You need to get these things right and make sure that the right people are at the table. It is part and parcel of the methodologies that we have applied when working in this particular area. It occurred over a number of years with a whole range of people from industry. It also occurred with a range of consumer groups. In some of those cases, that consultation process did actually have a bearing on the final outcome and resulted in some change, so the efforts of those consultations were not in vain and had a positive input. Not all the consultation results in everybody getting their own way, but it certainly does provide that essential guidance for government to make sure that policy is right and that any change is actually for the better.

There are a number of key amendments in the bill that clarify the types of contracts that are exempt from the act’s operation. The bill also frees up the use of electronic communication to make sure that the legislation is in line with technology and with the way that people communicate and sign up to contracts. The bill also makes duty of disclosure easier for consumers to understand. That has been an important part of a whole range of work that my committee has done in terms of transparency and disclosure. Transparency and disclosure are not the same thing and people often confuse them. Disclosure does not always give you the full picture. You can disclose everything that needs to be disclosed in a document that is 100 pages long but still make it completely non-transparent. No-one can understand it, no-one reads it and no-one actually gets any benefit from the disclosure. Transparency is completely different. It is about ensuring that people know, understand and see what they need to know in contracts.

A lot of work is being done by this government and also by the Financial Services Working Group to ensure that transparency takes place in contracts, in financial services contracts, in advice and in insurance so that people understand what is being presented to them and so that it is fairly represented. There is a lot of work being done, and hopefully very soon we will have some outcomes in terms of short-form disclosure and transparency. Instead of people getting an 80-page statement of advice or an 80-page disclosure statement and a policy document and a range of other documents, which may total in the hundreds of pages, they might just get four simple pages which outline what they need to know about the contract they are signing or the advice they are being given. It might be attached to or on top of all the other documents, but at least they will have that regulated, compliant, short-form, plain English type advice, which is a real step forward.

Short-form advice means that people will actually have a better understanding of what is in front of them. It also means that the people who produce and provide those documents to consumers have understood them and have read the most important parts. I commend the groups involved and the review committee for doing that, because easy disclosure for consumers, especially at the renewal of household and domestic insurance contracts, is very important. I am sure anyone who reads their insurance contracts would understand just how complex some of them are—even to find out a very simple thing, such as whether something is insured or not insured, is difficult. It is important that people understand the basic things.

We are also making sure, through the amendments in the bill, that remedies in respect of life insurance contracts are more flexible and suited to modern life-insurance products, because they do change over time and we need to reflect those changes. We are also clarifying the rights and obligations of persons named in contracts as to who has benefit of cover, particularly for parties who are not mentioned in those contracts but can be a party to those contracts. It is important to clarify that information. The point of dispute is often about who is covered if they are not named in the contract. It may be households, families and a range of other people.

An area that is of particular interest to me and many other members in this place is that of unfair contract terms. It is quite easy for unscrupulous operators to throw in a contract term—for example, ‘Term heading 128, subsection (b) of part F’—which has some outrageous arrangement that nobody would ever find, understand or otherwise know even existed and which, of course, removes the obligation of the insurer to provide any insurance at some particular point in time. We are dealing with this. It is not an easy matter, because insurance contracts and other contracts are complex instruments and need to be dealt with properly in legal terms. It is not one of the issues that are covered in this bill. It is the subject of a current carve-out under the Insurance Contracts Act for insurance contracts and under the unfair contracts terms provisions of other laws, including those that are included in the forthcoming reforms regarding unfair contract terms in consumer contracts generally.

This makes a number of people unhappy, and I can understand that. Let me give them some joy tonight by saying that the intention of the carve-out is to ensure that the Insurance Contracts Act framework is the primary source of regulation of insurance contract issues and matters. It is not complicated by being tied up with other legislation, because that can cause some very difficult legal problems. We have ensured that there is absolute clarity about where that legislation exists.

In the context of this debate and on the generic unfair contracts terms bill last year consumer groups did express some disappointment. I can understand that. They were disappointed that insurance contracts remain under that carve-out, but we are not leaving it at that. We have recommended that there be further consideration of this specifically in terms of insurance contracts. Whether the carve-out for insurance contracts should be removed or retained is a matter of some controversy. It involves some quite complex legal issues, which we are dealing with, regarding the interaction between different rules and laws.

The government is dealing with this issue separately through a separate consultation paper, which will provide various options. That is the proper way we should move on these very complex issues. That will be released soon. That offers a more appropriate mechanism to deal with the issue of extending unfair contract terms provisions to insurance contracts rather than just having them wound up in associated matters with other legal bills.

Insurance is very important. While I do not have hard data on this, I know it is the view of many people that, generally speaking, the Australian public are underinsured. Right across the board—be it life, risk, household, car or income protection insurance—there is a general view that we are underinsured. This is a serious matter because, when tragedy does befall, somebody needs to pick up the bill and somebody needs to step in and assist. It most often is the government through a range of departments or mechanisms that are available. At other times nobody really steps in, perhaps apart from charities.

We saw a perfect example not so long ago with the tragedy of the Victorian bushfires. Very tragically not only was there a massive loss of life, property and goods—people’s homes were lost—but so many people were not insured at all. They lost absolutely everything. Insurance companies try to deal with and manage that fallout. It is really complex. Some people were underinsured. Of course, the tragedy of losing a loved one is further compounded if that loved one happens to be the major breadwinner for the family.

Insurance is a strange product in a lot of ways because you do not really need it until you really do, and that is when its importance really comes home for people. I have always believed in insurance. I have always believed that it is better to have a bit of protection and take some risk rather than take all of the risk and hope and pray that nothing ever happens to you. Not everybody though can afford insurance. Insurance can be expensive. There are a range of state taxes, levies and stamp duties that apply that make insurance quite expensive. From the Commonwealth perspective we need to look at all the different issues around insurance and at what we can do to make it as affordable and accessible to people as possible to encourage people to take on board insurance, certainly at the minimum levels.

A perfect example is the compulsory third-party insurance that everyone must have with their vehicle registration. It is compulsory, firstly, because it is absolutely necessary and, secondly, because if it were not compulsory there would be a massive number of people who would not be insured at all. The burden of that on the rest of the community and on the taxpayer would be enormous.

I think these matters are exceptionally important. There is a range of work being done in these areas. I know that the parliamentary secretary for disabilities is doing extensive work and research into the potential of a national disability insurance scheme. There is work being done in other areas to look at how we can best regulate the insurance sector and also make sure it is more affordable and accessible to all Australians. It really is an important part of Australian society.

The Rudd government takes this area very seriously and certainly the Joint Committee on Corporations and Financial Services also takes this area very seriously. It is worth noting at this point that when we did the inquiry, which is affectionately known as the Storm inquiry, and looked at a range of other things about fees and commissions, financial services and products, we specifically excluded superannuation, which is being done by Jeremy Cooper in a more extensive manner, and we also excluded insurance in terms of fees and commissions. That is not to say we are not dealing with those things. We excluded them for that particular inquiry and recommendations. The minister has made a number of comments about turning back to those issues at some later time. I am certainly of that same view because I do take them very seriously. They are very important issues and need a very specific focus in terms of any further regulatory change in the future. This bill is a very important bill. It covers off on a range of mostly technical amendments and was the subject of some very sound consultation over a number of years. It finishes off some work that was started by the previous government. I commend the bill to the House.