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Thursday, 7 June 1984
Page: 2716


Senator GARETH EVANS (Attorney-General)(10.14) —I move:

That the Bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

INSURANCE (AGENTS AND BROKERS) BILL 1984

The purpose of the Bill is to regulate the activities of life and general insurance brokers and, to an extent, life and general insurance agents.

The Bill is largely based on the Insurance (Agents and Brokers) Bill 1983 which was introduced into the Senate on 7 December 1983 and which, in essence, reflects the regulatory arrangements recommended by the Australian Law Reform Commission in its report on insurance agents and brokers. That Bill was allowed to lie on the table of the Senate to enable public submissions to be made on its detailed provisions.

The Government has recently completed a review of the provisions of the 1983 Bill against the background of the submissions received from the States, the Northern Territory, insurance industry and consumer organisations, and a wide range of other interested parties. In addition, the Bill has been the subject of discussions with representatives of the industry and other related interests.

As a result of these processes the Government has decided to make a number of amendments to the 1983 Bill which have been incorporated in the current Bill together with some minor technical amendments passed in the other place. For the most part the changes have been designed to improve and clarify the regulatory arrangements reflected in the earlier Bill and to take account of certain practical and technical considerations raised in various submissions on the Bill .

A description of the provisions of the Bill is contained in the explanatory memorandum which has been circulated to honourable senators for information.

In very general terms, the Bill is aimed at strengthening the financial stability of the insurance industry overall; protecting the insuring public against the negligence or misconduct of an agent or broker; and encouragement of practices consistent with the interests of the insuring public and the maintenance of standards of conduct of, and quality of advice offered by, agents and brokers.

The main provisions will:

establish the responsibilities of insurers for the conduct of their intermediaries;

determine the arrangements concerning the discharge of financial obligations between an insured and intermediaries;

deal with questions of misrepresentation by insurance intermediaries;

require annual registration of brokers and permit suspension or cancellation of registration;

establish financial controls and requirements for insurance which indemnifies brokers in respect of liabilities arising out of their business operations; and

establish measures to minimise the risk of compromise of a broker's impartiality.

I will now outline for the information of honourable senators some additional brief background on a number of the provisions.

The provisions of the Bill do not apply to State insurance or Northern Territory insurance. I should mention, however, that the Government firmly believes that private and public sector insurers should as far as possible compete on the same terms and conditions. To this end, the Government will be continuing with its efforts to seek the agreement of the States and the Northern Territory to adopt the requirements of the Bill in respect of their government insurance offices.

In order to assist in promoting improved standards of conduct on the part of insurance agents, new provisions have been included in the Bill which will prevent an insurance intermediary (other than an insurance broker) from holding himself or herself out as entitled to arrange contracts of insurance as agent for an insurer unless he or she has been authorised to do so in a written agreement with the insurer.

In addition to the above requirement, agents will be required to provide copies of their agency agreements to intending insureds or insureds on request or to the relevant Insurance Commissioner. As I shall mention later, the Bill will also impose a number of other disclosure requirements on insurance intermediaries.

Under a provision of the 1983 Bill as introduced into the Senate, a person who arranges contracts of insurance incidentally to carrying on some other business or profession (other than the business of insurance) would not be required to observe the requirements of the Bill that are imposed on insurance brokers. Many of the submissions received on the Bill drew attention to the potential difficulties and confusion that this provision would create and it was suggested that in the interests of equity and equal competition all intermediaries carrying on business as an insurance broker should be subject to the requirements to register as a broker. Against the background of these considerations, the Government has agreed to omit that particular provision from the Bill.

The Bill also contains provisions which will impose responsibilities on the relevant insurance commissioner for keeping a register of life insurance brokers and a register of general insurance brokers. Additions to and deletions from these registers will be published in the Gazette and the registers and certain documents lodged by registered brokers will be available for public inspection.

Following a review of the provisions of clause 24 of the 1983 Bill, the Government has remained firmly of the view that it will promote industry stability and add to the protection of the insuring public if appropriate controls are imposed over the maximum credit periods allowed for remitting of premiums and other moneys by brokers to insurers and insureds. While there have been strong differences of view on these issues as between underwriters and insurance brokers, I am pleased to note that considerable consensus on this subject has been reached between the Insurance Council of Australia and the National Insurance Brokers Association of Australia. As a result of that development these bodies have put forward a number of constructive suggestions for improving these provisions in a way that would be consistent with the Government's broad objective. The relevant provisions in this Bill (Clause 27) largely reflect those suggestions. The main changes will allow insurance brokers a maximum credit period of 90 days within which premium moneys are to be remitted to insurers; this period to be measured from the date on which the cover provided under an insurance contract commences to have effect.

The Bill also contains certain adjustments to the information to be provided by brokers to their clients. In particular, a broker will be required to clearly indicate to insureds the amount of any fees imposed by the broker over and above premiums or other charges relevant to an insurance contract. In addition, a broker will be required to disclose to insureds, on request, any commission or other remuneration or benefits received from an insurer in respect of his or her services in arranging insurance contracts. In reviewing these requirements, the Government has decided to omit the provisions which would require brokers to disclose their fees and commissions to insurers. Those provisions have been strongly opposed by broking interests and the omission does not remove requirements necessary from the viewpoint of protection of insureds, particularly given the disclosure rights available to insureds as noted above.

With respect to the prohibition on cross-directorships contained in the 1983 Bill, the Government has decided that it should be sufficient for a broker to be required to disclose to intending insureds or insureds various relationships between the broker and the insurer which may be capable of prejudicing a broker' s impartiality or create conflicts of interest to the detriment of clients.

The Bill contains further provisions which extend the information that intermediaries are to provide to insureds. Persons who act for two or more insurers will be required to inform an intending insured of the name and a place of business of the proposed insurer before arranging a contract. This requirement, together with the provisions mentioned earlier concerning the requirements for agents to operate under written agency agreements, should help to pinpoint which insurer is responsible where the operations of 'multi-agents' are involved.

In addition, appropriate information is to be given to an intending insured or an insured where the cover under an insurance contract is to be provided by a foreign insurer not authorised under the Insurance Act 1973. I should add that this provision is closely related to the provisions of section 113 of the Insurance Act 1973 and that the Government proposes to review those provisions in the light of the regulatory arrangements being established under this Bill.

As indicated when the 1983 Bill was introduced into the Senate in December last year, it is the Government's intention that this legislation be implemented in accordance with the principle that there will be full cost recovery by the Commonwealth from the industry in respect of the legislation.

Taking the Bill as a whole, the Government believes that it will make a very worthwhile contribution towards establishing appropriate standards and practices in a relatively unregulated area of the insurance market. Clearly, the Bill will provide increased protection for the insuring public and will complement the supervisory systems already established under the Insurance Act and Life Insurance Act.

I commend the Insurance (Agents and Brokers) Bill to honourable senators.

LIFE INSURANCE AMENDMENT BILL 1984

The main purpose of this Bill is to amend the Life Insurance Act 1945 to effect a number of changes consequent upon the provisions of the Insurance Contracts Bill 1984.

In general terms this Bill recognises the introduction of the wide ranging provisions contained in the Insurance Contracts Bill and the fact that, in a number of important areas, these provisions are more comprehensive than related sections of the Life Insurance Act. The amendments here proposed are also necessary to eliminate certain anomalies as between the Life Insurance Act and the Insurance Contracts Bill.

In particular the amendments will provide that in respect of contracts entered into after the enactment of the Insurance Contracts Bill, its provisions will supersede provisions in the Life Act relating to age misstatements; the consequences of written misstatements made when effecting insurance; and the specification of interests that must be present if valid policies of life insurance are to be effected.

Another amendment will ensure that, in situations where a policy owner does not wish to continue with a life policy and requests a paid-up policy, the relevant contract shall be varied, rather than a paid-up policy issued in lieu, to recognise the policy owner's right to payment of the varied amount as determined in accordance with the rules relating to paid-up policies and to ensure that provisions of the Insurance Contracts Bill relating to misrepresentation will carry over to paid-up policies.

Finally, a technical amendment is considered desirable as a result of the above -mentioned changes relating to insurable interest. The Life Insurance Act currently contains a number of provisions relating to the payment of claims on the death of children under ten years of age. However, a savings section in the Act provides that those provisions are only intended to apply in situations where there exists a family or personal interest, as distinct from an economic type interest, in the life of a child. The amendment will remove any doubt that those provisions will continue to apply to contracts entered into after the enactment of the Insurance Contracts Bill.

I should add by way of general background that as foreshadowed last November when introducing amendments to the Life Insurance Act the Government is continuing with the process of developing a number of other proposed amendments to the Act. I refer, in particular, to possible administrative improvements to the Act suggested by the former Life Insurance Commissioner, proposals arising out of a recent comprehensive review of the Act, and any comparable changes of the kind that may be developed to amend the Insurance Act 1973 in the light of the failure of Bishopsgate Insurance Limited.

I assure the Senate that it remains the Government's intention to pursue these possible further changes to the Life Insurance Act at the earliest opportunity.

I commend the Life Insurance Amendment Bill 1984 to honourable senators.

Debate (on motion by Senator Collard) adjourned.