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Tuesday, 24 November 1959

Mr CREAN (Melbourne Ports) . - Mr. Deputy Speaker, this bill is concerned mainly with what may be termed technical amendments to the Life Insurance Act 1945- 1958. I think they could be equally well described as inflationary amendments, for they increase from £500 to £1,000 the limit up to which life insurance companies may pay claims without production of probate or letters of administration; increase from £200 to £500 the amount up to which a special policy may be issued in place of a lost policy without the expense of advertising the loss; and increase the minimum rates of surrender value provided for in the act, as a consequence of the higher interest rates currently being earned.

Here again, Mr. Deputy Speaker, honorable members are faced with the difficulty of properly assessing the purpose of these proposals. This bill was introduced last Wednesday. Before members of the Australian Labour Party have even had an opportunity to meet and form any opinion about it, the debate has been resumed. I suggest, with all respect, that, although the Government may claim that the matters with which this measure is concerned are merely technical, the Opposition should not be required to take the Government's assurance on trust or on faith, particularly since we have little trust or faith in the Government which has sponsored these proposals. Tonight, we have another two bills, one covering about 70 pages and another 58, and we are told that if we do not pass them within a day or two we will be withholding benefits from certain sections of the community. I suggest that an Opposition is entitled, at least, to a little more courtesy in these matters.

Mr Snedden - You cannot object to the size of this bill.

Mr CREAN - I am not objecting to the size of the bill but to the fact that there are two or three significant amendments in it. A small bill is not necessarily unimportant. My colleague, the honorable member for Melbourne (Mr. Calwell) had some part in framing the original life assurance legislation. It is quite a significant act which deals with an important aspect of financial and investment operations in Australia. In view of the rate at which inflation continues one is sometimes a little astonished that the value of new insurance policies continues to rise year by year. Whilst, at one time, one might have been a little gratified at holding an insurance policy worth £200 or £300 on maturity, such a sum does not now appear to be very significant in itself.

Those of us who read the annual reports of the Insurance Commissioner as they are presented for the consideration of this Parliament can see that there have been considerable changes over the past several years in the way in which the assets of insurance companies are distributed. To-day, insurance companies are among the biggest institutional investors. At one time, the major part of insurance company assets consisted of government securities. Whether they were Commonwealth securities or local government and semi-government securities did not matter very much but there was very little other investment, apart from mortgages, in what have been called " industrials ". That tendency has changed.

The change has come about largely because of the interest rate policy that has been pursued by this Government. Insurance companies, like individual investors, had unfortunate experiences with government securities. As organizations which are trustees, in a sense, for their policyholders, there is an obligation on them to see that they get as big a yield as is possible. But, as with other aspects of investment, how they dispose their assets does have significant implications for the developmental policy of the country as a whole. I suppose that the Labour Party has indicated in this Parliament for at least as long as I have been a member of it, which is nearly eight years, that it is necessary to have some kind of proper balance between what can be called public investment on one part and private investment on the other.

Traditionally, in the past, the great life assurance companies of Australia have been investors in the public field as distinct from the private field of investment. But latterly, a development has occurred in Australia and, to a greater degree, in Great Britain. The life insurance companies in Great Britain are showing a greater tendency to dispose their investments in industrials as distinct from gilt-edged securities. That trend has been followed in Australia, more so over the past four or five years and largely as a direct consequence of the financial operations of this Government.

Insurance, in many ways, is a form of investment by proxy. The small weekly savings of some millions of individual policy-holders, whether contributed weekly under the industrial form of policy or paid quarterly or annually, are aggregated ia the hands of insurance companies and then invested by the managers of those companies. Whether these funds are invested in gilt-edged government securities as in the past, in mortgages to encourage home building, directly in industrial undertakings or, in the new form of investment activity, the investment trust which is embraced in the very wide term " people's capitalism ". they are all significant as far as the investment pattern of the community is concerned.

I do not think that the proposed amendments go to the root of these great problems. Mostly. as I have said, they are inflation amendments. They simply cover the fact that when the act was drawn by my colleague, the honorable member tor Melbourne, he thought that the sum of £500 was fairly significant. Now, this Government says in effect that the present equivalent of £500, in 1949, is at least £1,000. In other words, this is the sum that has the same degree of purchasing power as £500 had in 1949.

Mr Calwell - The year was 1946.

Mr CREAN - That makes it even worse. Instead of £1,000 the sum should now be £2,000. I have looked at this bill in the limited amount of time that has been available between its introduction, and up to this late hour to-night when we are asked to pass it. The third matter for which it provides is a small increase in the minimum rate of surrender value laid down in the act. The surrender value was not in vogue, at any rate in some of the less reputable insurance companies, prior to the passage of the uniform act. We had an example of another uniform act a day or two ago. Life insurance was one of the first cases in which the Commonwealth Parliament legislated on a matter which is of common interest from one part of the Commonwealth to another. As a result of a number of committees of inquiry and, I think, even a royal commission, in Australia, it was realized that there was great injustice in the method that some of the insurance companies adopted towards the assessment of the value of policies when people, for one reason or another, after keeping up payments for a year or two, found that they could not continue. In some cases they lost the entire value of their policies. It was written into the law that if a person had been contributing to a policy for a period of two years, at least there was some equity in the undertaking as a whole on the part of the person who had been contributing. To-day a policy is deemed to have a surrender value in certain circumstances. According to the speech made by the Treasurer the other night, the effect of this measure is to provide a small increase in the minimum rates of surrender value laid down in the act. This is done by varying the rate of interest in computing the surrender value of the policy. This is another indication of the change in the financial circumstances of the community as a whole by reason of the financial policies pursued by this Government.

If we had been given more time to consider this measure, as I think members of the Opposition are entitled to have, we might have gone into some of the deficiencies which still exist in the operation of insurance companies in Australia, as we did on a previous occasion twelve months ago. I, as well as some of my colleagues pointed out approximately twelve months ago that there are quite significant differences in the ratio of expenses of operation to premiums between a number of insurance companies in Australia. Some of these companies operate more efficiently than others; some have a lower rate of overhead than others, and the lower the rate of overhead expenditure to income return the better is the position of the individual policy holders in such a company. There are still some companies in Australia which have a bad rate of performance in this respect.

The Commonwealth Government, which has overriding powers concerning the operation of life insurance companies, should pay a little more attention to this field. There is still the absurdity being perpetuated in Australia of the " industrial policy " as it is called. Small amounts are contributed weekly by policy holders to a collector who goes from door to door. In some industrial suburbs there may be something like half a dozen collectors calling in the one street, weekly or fortnightly, collecting small sums. It is still as true to-day as it was twenty years ago when committees of inquiry examined this matter, that there is a higher rate of overhead expenditure on the industrial side of life insurance than on the endowment side.

Mr Calwell - It is twice as high.

Mr CREAN - In many cases it is four times as high, according to the companies concerned. It is understandable that if, instead of having a man calling at places 26 or 52 times a year, a policy holder posted a cheque to the company annually, quarterly or monthly, the rate of overhead would be much lower. The insurance companies have recognized this and have carefully segregated the two types of business.

A few weeks ago we had an example of a new concession given to certain people in the community who have been able to afford £6 a week in life assurance premiums, which were allowed as income tax deduction, having that amount raised to nearly £8 a week, or £400 per annum. Any good insurance agent is able to tell an inquirer, in terms of his particular income and of the amount of insurance that he holds, what it is worth to him to invest in a policy which literally is scarcely a life policy at all. A person can take out an insurance policy for five, ten or fifteen years. If a taxpayer on a marginal rate of 10s. or 13s. in the £1 has not a full amount of life assurance which can be written off as a deduction for income tax purposes, and he has also a sum of £100 or £150 which he might otherwise have invested in another way, most insurance agents would tell him how he can to his own advantage put it into insurance.

This concession was given by the Government ostensibly in accordance with its great theory of encouraging saving. The fact that all that has happened has been that instead of the amounts which go to the insurance company being directly invested by the individual himself, they are invested for him by proxy - by the trustees or managers of the trustee company - in whatever form of investment they determine, has some significance in the pattern of Australian economic development. I recall from a previous examination of the report of the Commissioner of Taxation that over the past five years or so .there has been a considerable change in investment by insurance companies in Australia.

Honorable members who read that very important journal, " Financial Review ", which now gives currency to the Labour point of view at least occasionally and has some very informed articles at times, might have read an article either in its current issue or the preceding issue by Mr. Bell of the Australian Mutual Provident Society. I think he is an economist attached to the A.M.P. organization which is one of the great insurance companies of Australia. He pointed out that it is the obligation of an insurance company to obtain the greatest possible yield for its shareholders or policy holders. The difference is purely nominal as policy holders in an insurance company are shareholders in it. Mr. Bell said it was the company's obligation to secure the greatest possible return for its shareholders, and therefore there was a greater disposition to seek a yield and put the investment into equities as distinct from gilt-edged securities. He urged the exercise of caution in regard to these new theories on saving. The point can be reached where the balance between the market yield from particular securities is so close to the yield from gilt-edged securities that a move up or down of one or the other could have disastrous effects for the policy holders. It could have disastrous effects also for the community as a whole.

As I mentioned earlier, members of the Opposition have suggested that one of the errors in the Australian economy over the last ten years or so has been that the proportion of public investment to private investment has not been as great as it should be. It has been rather interesting to see some of the documents compiled, even recently, with a certain amount of Government authority. I refer particularly to a committee which inquired into secondary industry, or something of the kind, and recently produced a report that was circulated among honorable members. It indicated that there has to be proper balance between public investment on the one hand and private investment on the other. I refer to public investment as involving such unspectacular things as more secondary education or more universities. After all, if you want to produce more technicians you have to have them properly educated, so you have to provide facilities for them to secure education. To a degree there should be greater co-ordination between the public and the private sectors in - relation to the total amount of investment. Nobody can arrive at any exact theoretical figure as to what the proportions of public and private investment should be from time to time, but 1 think we need a better regulator than the current market rate of interest or what are called the " market forces ", in determining these amounts. At least the field of life assurance is one point where some control - some public control, and I emphasize the word " public " - can be exercised.

In making such statements, Mr. Speaker, it is necessary .to be careful, because sinister implications are sometimes read into what one says, and are quoted against one in the years to come. When somebody states that there should be greater public control over the activities of life assurance companies we are sometimes .told that that amounts to interfering wim private enterprise. I do not regard life assurance as private enterprise. In fact, even with the shifting of the disposition of the assets of the insurance companies, I think their most significant form of investment is still in government securities - public investment rather than private investment. By "public investment " I mean investment in semigovernment and local government, as well as direct Commonwealth, securities. It is of some significance in the overall pattern that occasionally we should impose some regulations in this field. One point at which I think more regulation should be exercised than has been the case is in this field of industrial insurance, where there are still too many people hawking policies down the same street, selling what are really inadequate policies to people - policies investment in which is not really the best way of securing savings by the community. All those things go to the root of our investment policy.

I come back, Mr. Speaker, to where I started - that I think that an Opposition is entitled to more notice in relation to such measures than we are given. My former colleague in the Victorian Parliament, the honorable member for Chisholm (Sir Wilfrid Kent Hughes) may remember, as I remember, that in the Victorian House no matter how insignificant a bill was brought in we insisted on being given a fortnight's adjournment of the debate before that matter was dealt with. I suggest that a similar principle might well be adopted by this House. It is easy enough to say, as the Treasurer said to-night, that we have had committees looking at a bill for twelve months or eight months or five months, as the case may be; if it is good enough for a committee of experts to deliberate on a measure for eight months or twelve months, surely it would be mere courtesy to members of the Opposition to give them more than 24 hours to judge measures. I submit that the same is true about this bill as was true about the Superannuation Bill and the Defence Forces Retirement Benefits Bill, which also go to the root of the investment field, because the amounts taken weekly from Commonwealth public servants or members of the defence forces, or anybody else who participates in a superannuation scheme, are something that ought to be seriously looked at.

One thing that has developed in Australia over the last ten years is the .existence of many private superannuation funds which, in essence, are handled by some of the big life assurance companies. Again, contributions to superannuation funds are allowable deductions for tax purposes, both in respect of employers and employees. In many respects a great danger exists in the fact that somebody who has built up an equity as an employee of a firm finds that often the thing which is ostensibly designed to protect him in the years that he is not working is used as a barrier to prevent him from moving from one point of employment to another. I would suggest that just as the Commissioner of Taxation scrutinizes the conditions on which such funds may be established, there should equally be some authority which will provide for the integration of funds between one employer and another, so that if an employee threatens to go on strike he will not be told that he will thereby lose whatever equity he has in his firm's superannuation fund. That is another matter of public control which also probably comes within 4he - field of life assurance.

There are probably other honorable members who have some views on this matter -who, like myself, lave not had the proper time to encompass all that they wish to say on it. Earlier to-day we had a bill that also went to the root of the matter, as it were, so far as investment is concerned. We had it at 4 o'clock to-day and now it is nearly 11 o'clock, and we have another bill before us, and we are again asked to give our views on something that is probably equally significant. So 1 want to reiterate my protest against the haste with which this Government is bringing legislation down in the dying hours of the session.

Mr.CALWELL (Melbourne) [10.571.- I desire to support what my colleague from Melbourne Ports (Mr. Crean) has said, and to make a few observations on some aspects of this legislation, which is being rushed through the Parliament. It could have been brought down at a much earlier period in this session. Surely if the experts were considering it for eight months it was not necessary for the Government to introduce it at this time, when the Parliament is about to rise. The bill does not do so very much for people.

Mr Bury - You would not have thought so to listen to the honorable member for Melbourne Ports, who was traversing the whole range of insurance.

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