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Thursday, 9 August 1906


Mr FRAZER (Kalgoorlie) .- In moving -

That the Bill be now read a second time.

I desire to place on record the existing conditions in relation to fire insurance. I find that the fire insurance companies operating in Australia are doing so under State laws. In the majority of cases, they are working under special Acts and under regulations which, though they differ in subsidiary matters, are, in the main, in agreement. I propose that the Commonwealth shall embrace this opportunity to exercise the right conferred upon it by subsection xiv. of section, 5.1 of the Constitution, which reads -

The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth, with respect to : -

Insurance, other than State insurance ; also State insurance extending beyond the limits of the State concerned.

I think that that provision is sufficiently broad to enable this Parliament to take such action as it may deem to be necessary to regulate the conduct of the business carried on by fire insurance companies in Australia. In looking through the Annotated Constitution of the Australian Commonwealth, I see that its authors, at the end of their observations upon insurance, say -

Whether the Federal Parliament could pass laws determining the manner in which Federal corporations should enter into contracts is a question for judicial determination when the case arises.

That is the only statement, so far as I can gather, which questions the right of this P arliament to enact laws relating to fire insurance companies. Whilst I hesitate to set my opinion in opposition to that of the authors of the work from which I have quoted, I entertain no doubt whatever that under the Constitution we have power to legislate in respect of that subject. Most people are aware that both the life and fire insurance companies carrying on business in Australia own the best buildings in our cities, and conduct their operations in the most pretentious style. Apparently, they have plenty of money at their command. It seems to me that there is only this difference between the position of the life insurance companies and that of fire insurance companies. The buildings of the former represent the savings of the community, and the provision which has been made against possible disaster by our people. I am afraid that, on the other hand, fire insurance companies owe their affluence and their magnificent buildings in a great part to the deception that they have practised upon those with whom they have had business transactions. I have experiencedsome difficulty in obtaining the information that I desired to present to the House. In the first place I wrote some time ago to something like sevenforeign insurance companies operating in Australia, asking them in courteous terms to supply me with copies of their balance-sheets. In response to these communications I received only one balancesheet. Some of the companies promised to furnish me later on with copies; others said they had none at hand, and' others again offered to supply me with any information I might desire on calling at their offices. Two of them had not even the courtesy to reply. In these circumstances I am not in a position to present any statistics, relating to the business of these foreign corporations; but from the Banking and Insurance Record I have obtained some interesting information relative to the position of the sixteen Australasian companies carrying on business in the Commonwealth. I propose to place on record some figures showing the position which these companies occupy, and I shall endeavour later on to indicate the means by which they make their profits. The South British Company, which has its head office in Auckland, in 1901 had a capital of £64,628, and its reserves amounted to £140,000. In 1904 its reserves had increased to £300,000, showing an advance of £160,000 in respect of its operations, with a capital of £64,628, in three years. The profit which this company made in 1904 was £76,101.


Mr McCay - And one big fire might cut down all that profit.


Mr FRAZER - But the position of this company is no different from that of the average company in the matter of losses sustained during the period under review. In 1904 the company made a profit of £76,101, and declared a dividend of £19,388, which was equal to 30 per cent. on its capital. The Victorian Insurance Company, with a capital of £50,181, in 1901 had reserves amounting to £36,888. In 1905 those reserves had increased to £88,838, and it had undivided profits amounting to £10,158.


Mr McCay - Does the honorable member disapprove of these companies building up reserves?


Mr FRAZER - I am not disapproving of their operations in that regard; I am simply endeavouring to point out that the business in which they are engaged realizes for the shareholders enormous profits. Later on, I propose to show the sources from which those profits are derived. The Victorian Insurance Company in 1905 made a profit of £27,571, and declared a dividend of £17,975, more than 30 per cent. on its capital of £50,181. The New Zealand Insurance Company in 1900 had a capital of £200,000, and reserves to the extent of £255,000; in 1904 it had built up those reserves to £401,519.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - It is a good thing to have a big reserve fund when! a great fire takes place.


Mr FRAZER - That is so, but I would point out that these companies donot take exceptional risks in connexion with scrous conflagrations; risks in respect of large policies are distributed over a number of other companies. The profits of the New Zealand Insurance Company for the year 1904 amounted to £62,098, and it paid a dividend of £30,000 or 15 per cent. on its paid-up capital. The Australian Mutual Fire Insurance Company has a capital of £62,500. In 1905 it had a reserve fund of £121,500, made a profit of £17,136, and paid dividends to the extent of £9,312 or 15 per cent. on its paid-up capital. To put the position shortly, the sixteen Australasian companies operating within the Commonwealth in 1904 had a total capital of £1,058,285. In 1905 their total capital was £1,101,409, showing an increase of £43,124 for the year. During the same period their reserves increased to the extent of , £1 18,952. Their undivided profits amounted to £48,742 - and these were really reserves - and in 1905 they made a profit totalling £350,567,or £53,774 more than the profit made by them during the previous year. During the same period with an increased capital of £43,000 they paid an increased dividend of £23,603, or more than half the amount of the increased capital. These figures show that the Australasian companies operating in Australia are in an exceedingly prosperous condition, and that they are building up their reserves' at a remarkably rapid rate. It is evident that they are carrying on a business which is far more prosperous than is that in which ordinary financial agencies engage. It is interesting to learn how these profits are made. I have on record statements made by several leading business men in Westers Australia - and particularly in Kalgoorlie - in which it is claimed that these vast profits are secured as the result of excessive charges. I believe that excessive charges do contribute partly to the enormous profits realized by these companies.


Mr McCay - The honorable member refers to excessive premium charges.


Mr FRAZER - I do; but there are other methods of building up profits. The owner of the second largest soft-goods business in Western Australia accompanied a deputation to the Government of that State, and urged the establishment of a system of State insurance, in order that the people might be relieved of the exorbitant charges of- the insurance combine operating in that State. That request was indorsed by other business men in Western Australia, who complain - and justly complain, I believe - of the high charges imposed by those companies. Whenever an alteration in the law relating to fire insurance companies is proposed, those interested in them speedily raise an outcry. It will be said, no doubt, that the States themselves should take action in the direction I propose. Why have they not done so? Unfortunately, the States Parliaments at present are not so constituted as to be very amenable to a request on the part of the people for consideration in- this direction. Their Upper Houses in each case are an effective harrier to any interference with the privileges and powers of financial institutions. Circulars in regard to this Bill have been distributed amongst honorable members, but I have been excluded from the lists of recipients. Some of these circulars have been sent out anonymously, and do not altogether escape the charge of impertinence. .In these circulars a strong point is. made of the contention that insurance means indemnity, andi that this Bill will bring about an alteration in that regard. But I say that, whilst insurance should mean indemnity, it certainly does not under the existing conditions, because one of the contracting parties does not intend to pay. What I propose is that those who insure shall be able to obtain the amount of insurance due to them when the disaster against which they have insured overtakes them.


Mr McCay - This Bill means that insurance is profit.


Mr FRAZER - -It means nothing of the kind. It means that fire insurance companies shall not be able to contract them selves out of their liability, and to accept risks in the absence of an intention to pay.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - It might mean that they would have to pay five times the amount of the loss.


Mr Fisher - In what part of the Bill is there a provision that could be so construed ?


Mr FRAZER - It is pure imagination on the part of the honorable member. The Bill contains no such provision. It is wonderful how some people call out directly there is submitted to Parliament a proposal trespassing upon! the particular preserves of the boodlers of this country.


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - The honorable member is proposing to create a new industry - that of fire-raising.


Mr FRAZER - I am trying to put an end to the industry of the fire insurance companies who refuse to give to those who have insured the amounts for which they have paid1 premiums. To my mind, the methods of the insurance companies are very unsatisfactory. In the first place, they make very little examination, if any at all, of the proposed risks. Although, they have agents in different places, it frequently happens that valuators are not sent out to inspect the properties which it is desired to insure. But, although the person who wishes to effect an insurance may not be satisfied with the conditions imposed in the policy of any company, he is compelled to accept them, because the conditions in the policies of the other companies are in the main the same. What usually happens is this : The person wishing to insure makes a proposal, and a fire insurance company accepts the proffered risk. Later on a fire occurs. If there were no fires, there would be no insurance companies; but, although it is often insinuated that there would be fewer fires if there were no insurance companies, many fires occur for which no one is to be blamed. After the fire the company sends an adjuster to ascertain the amount of the damage. He is very often paid a commission on the reduction that he can effect in bringing about a settlement, and is consequently interested in getting the person insured to accept a smaller sum thani that upon which he has been paying premiums. Frequently accompanying the adjuster is a builder, sometimes a bogus one, who, in the event of a contract being let, would not be able to erect another building. They, having viewed the premises, the person insured is informed that the place can be rebuilt for so much, and that sum is offered without prejudice, being, invariably less than the amount stated on the policy. The person insured may fume, but what alternative has he but to accept the offer?


Mr DUGALD THOMSON (NORTH SYDNEY, NEW SOUTH WALES) - He can allow the company to reconstruct.


Mr FRAZER - On that point I will read one of many letters which I have received from persons who have had dealings with fire insurance companies. This letter was sent to me by a reputable citizen of Kalgoorlie, and I shall quote it because of its moderation, and because I know that every word contained in it can be verified by an independent inquiry into the facts alleged. My correspondent writes - 950 Bourke-street, Boulder City, 12th July, igo6.

Dear Frazer,

I received your ' letter, and I see you wish to be reminded of the actual facts regarding the fire which occurred at my place on January 16th, when my home and furniture were totally destroyed. The fire started in my sisterinlaw's bedroom, through the curtains coming against a lighted candle. My house and my furniture were insured with the Commercial Union Insurance Company for ^250 and ^75. Of course, after the fire, I made my claim 'o the insurance company. After waiting about fourteen days the company's adjuster, Mr. Horner, arrived, and I met him, and he had a builder named Heron with him, and we took measurements of what remained of the house. After about nine days, I received a wire, " Heron's price to rebuild £180, offer you that amount without prejudice. HorneT."

That is, £70 less than the amount upon which he had been paying premiums -

Well, I tell you, I was surprised, as the place cost me well over ^300 to build. I immediately wrote back, and said that the only offer I could accept was the place rebuilt as it was before, or the full amount df the insurance, ^250. Mr. Bignell, who lives next door to me, told me that the way he heard Heron and Horner 'speaking he did not think I would get a fair deal. After another week's delay I was informed that Mr. Horner would be up on the fields again, and would see me himself.

By this time thirty days had elapsed -

I met him, and he had Heron with him again, and he asked me to accept the money, ;£i8o, but I told him I did not want any money, I wanted the place rebuilt as it was before. He «aid that they would start to rebuild right away, but when I told him I wanted to see the architect's plans of the place he proposed to build, he was taken back. He thought he was just going to run up any sort of place, but I would not consent to any building going up without an architect and proper plans and specifications. Horner then took me to Mr. Cummings, architect,' Lane-street, Boulder, and instructed him to draw up plans and specifications, and gave him the measurements of the place. Well, the trouble began then. The architect made me "get a copy of invoices for nearly every item in the place, such as box framed windows, size and make of doors, stamped metal ceilings, fly screens foi windows, and fly doors, and every little item that was outside of Jarrah timber. As the timber and materials were all purchased in the Boulder, I was able to get them, although it gave me a great amount of trouble. Another week's delay -

By this time thirty-seven days had elapsed - and the plans and specifications were finished, and, on the whole, it was a fair thing, and about as near as could be expected. But I had to keep getting notes from the timber merchants to make the architect put them in. Another fourteen days' delay, and Mr. Horner arrived again, and I asked him when they were going to start and build. He said he was not satisfied with the plans, and I asked him what part he was not satisfied with, as I had got all the proofs his architect wanted. He said he would underline all he took objection to, and would then send the plans back to me. He then -

That is, after about forty days - offered me ^225 in settlement of my claim for ^250 for the house, as I had received the ^75 for the furniture. But I told him again that the only offer I could accept was the full amount of the insurance or the place rebuilt. Another week's delay, and the specifications were sent back to me with all Mr. Horner's objections underlined in. red pencil, and I had to prove every detail. Mr. Horner said if I could prove his objections he would recommend that my claim should be settled in full. One item in the specifications that he underlined was - stamped metal ceilings at 22s. 6d. per square, and I produced a copy of Wills and Company's invoice to show I had paid 37s. 6d. and 2&s. 6d. per square for all stamped metal used in my place. The studs in my house were only iS in. apart, and in the new plans they were 2 ft. apart. But the architect told me that there must be a little give and' take in these matters. Well, when I satisfied them of all materials they took exception to the way the place was painted, but I had lost patience. I wrote direct to the head manager in Perth, and went and saw the Kalgoorlie manager, and told him that unless I had a speedy settlement I would publish the full details of my case in the. press. I also instructed Mr. J. N. Brown, solicitor, to write a letter for an early settlement. I had also engaged an expert builder to go through the plans with me, and he told me that the place could not be built for under ^300. Anyhow, I do not know whether it was the solicitor's letter or my threatening to write to the press, but the company settled up with me in full, after keeping me waiting over sixty days.


Mr Hutchison - That is worthy of a blackmailer.







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