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Thursday, 5 December 2002
Page: 7315

Senator SHERRY (5:07 PM) I move opposition amendment (1) on sheet 2669:

(1) Schedule 1, item 1, page 5 (lines 8 to 17), omit paragraph (e), substitute:

(e) under the terms of the settlement, some or all of the compensation or damages is to be used by the defendant, a person with whom the defendant has insurance against the liability to which the claim relates, the injured person or the injured person's legal personal representative to purchase from one or more *life insurance companies or State insurers:

(i) an *annuity or annuities to be paid to the injured person, or to a trustee for the benefit of the injured person; or

(ii) such an annuity or annuities, together with one or more lump sums that are also to be paid to the injured person, or to a trustee for the benefit of the injured person.

As I referred to earlier, the bill requires that annuities are purchased by the defendant or their insurer directly. Labor's amendment will enable the injured person or their legal personal representative to also buy a tax concessional annuity as part of a settlement. This will ensure that the uptake of structured settlements is encouraged on its own merits rather than because of any structural unfairness in the bargaining process.

As I noted previously, we have taken on board representations through consultations that it would be simpler to remove the timing concerns from the debate by restricting the purchase of such annuities to before the time of the settlement. The issue then simply becomes one of access. Why shouldn't the injured person or the legal personal representative have the right to put a counteroffer on the table at the time of the negotiations? Importantly, Labor's amendment will maintain safeguards to ensure that these arrangements are not misused for tax planning purposes and preserve the requirement that annuities be purchased from a life insurance company or state insurers. The integrity concerns will be met through the simple requirement that no more than the original settlement can be converted into an annuity at the time of settlement. This will prevent other sources of funds being moved into these tax advantage vehicles. Also, preserving the requirement that annuities are purchased from a life insurance company or state insurers will continue to ensure proper prudential supervision of the source of the annuities.

Labor considers the bill to be substantially improved by the amendment that I am proposing today. It enhances the policy intent of the bill by further encouraging the use of structured settlements by injured parties. It does this in a responsible manner, it protects the revenue and it strikes a more responsible balance between the competing legitimate interests. As noted previously, the essential economic case is unchanged under Labor's proposed amendment. There remains a direct economic advantage to both parties for an insurer life office to provide annuities rather than lump sums since the provider is able to bear the actuarial risk more efficiently than an individual. In addition, the tax concession provides a further economic advantage for annuities.

Since these fundamental economic incentives remain unchanged, the only change is with respect to who captures this economic advantage in the bargaining process. Under the current arrangements, the veto power held by the defendant insurer will mean that they can seek to capture all of this economic advantage through bargaining by providing a `take it or leave it' offer. Labor's amendment will mean that the injured person's plaintiff lawyer can put a floor under unreasonably low offers from the defendant insurer. This will help to ensure that the economic advantage from moving to structured settlements is shared appropriately between the defendant insurer and the injured person. The concern has also been raised that Labor's amendment will reduce the financial advice given to injured persons before the time of settlement. It is not clear how this can possibly be an outcome of providing more financial bargaining power to the injured person.