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Thursday, 18 October 1984
Page: 1999

Senator MAGUIRE(5.13) —The tenth annual report of the Insurance Commissioner and the Insurance Act which enables it to be produced are a result of one of the great reforms of the Whitlam Government in 1973 when it passed the Insurance Act. As a result of that Act being passed by the Whitlam Government, for the first time we have active financial supervision of the general insurance industry in this country. The report provides a lot of financial information on trends in the industry. It indicates, for example, that in the year to June 1984 there was a reduction of 17 in the number of companies which were authorised to provide insurance under the Act in Australia. Of course , one of those 17 was the notorious Bishopsgate company, which was placed in official liquidation in August 1983. It had losses of $19m or the equivalent of some 50 per cent of its assets. As pointed out by the Commissioner in his report , the Bishopsgate failure resulted substantially from fraud on the part of one of the principals of the company.

The Commissioner's report puts on the record just what a major industry in Australia the general insurance industry is. In 1983 direct premiums totalled $6 ,500m and the book value assets of the industry were over $14,000m. One of the indicators of growth in the industry is direct premium income. During the calendar year 1983 premiums grew 16 per cent for private insurers and over 20 per cent in the public or government insurance sector of the industry. However, it is clear that growth rates are down on those of the previous year. The report also highlights the sheer size of employer liability insurance within the private sector of the industry. Some 30 per cent of all private sector insurance income now comes from employer liability. It amounts to over $1,300m a year.

One of the interesting findings in the report is that since 1979 direct premium income for the industry overall-the public and private sectors combined-has been outpacing the rise in the money value of gross domestic product. For example, between 1979 and 1983 direct premium income rose by 81 per cent compared with a rise in Australia's gross domestic product of 61 per cent. Unfortunately, it is not clear from the report just how much of that greater direct premium income came from a larger real level of activity in the industry, that is a greater volume of insurance written, or how much was due to companies increasing their rates and charges. It is quite clear, however, that premium income has been outpacing gross domestic product.

One of the disturbing features which I noted on page 30 of the report is the sheer growth in the level of concentration in the general insurance industry in Australia. The Commissioner points out this trend. For example, the top five general insurers in Australia account for 30 per cent of all general business written by private sector direct underwriters. That is a rise from 27 per cent last year. It is very clear from the Commissioner's report that the most concentrated areas of general insurance in the private sector element of the industry are compulsory third party insurance, in which the top five firms account for 100 per cent of the business written; contractors insurance in which 71 per cent of business is accounted for by the top five firms; and employer's liability insurance in which 49 per cent of all business is accounted for by the top five firms. We will all have to monitor the position to ensure that this concentration does not have adverse economic effects through reducing competition and providing less than optimum economic performance for the industry.

The Commissioner also points out that there is very high penetration in the Australian economy of general insurance and by world standards the growth in the future will have to come from better management and from the results of overall economic growth.

Question resolved in the affirmative.