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Thursday, 24 May 2001
Page: 27049

Ms BURKE (4:08 PM) —I rise to support this matter of public importance, and join with my colleague the member for Wills in condemning the government's handling of the regulation of the insurance industry as a whole and its sloppy approach in dealing with the unprecedented collapse of HIH. My first experience with the delightful HIH was back in 1995 when HIH took over CIC. I spent several months in the Industrial Relations Commission listening to lawyers argue that HIH were not taking over CIC and that it was really a share transaction amalgamation because of Winterthur buying into Australia. This argument went on for months so HIH could avoid their responsibility under the standard transmission of business provisions. Why? So HIH could simply try to reduce the terms and conditions of CIC staff, most notably the redundancy conditions. That has now rebounded on poor HIH staff, who actually do not have a redundancy provision to protect them as an unsecured creditor at this time.

This experience has left me with a lasting impression of HIH, because HIH management was without doubt the most arrogant, petty, mean-spirited employer I have ever had the pleasure of dealing with. To have a senior manager request that you refer to the CEO at all times as Mr Williams and not Ray speaks volumes. Also the implied, but not written, staff policy that women were not to wear trousers and that men could not sport a beard in the workplace is also testimony to the dictatorial style of the company. So when I heard that HIH had collapsed—leaving in their wake countless policyholders with no cover, protection or indeed income—it did not surprise me, as their arrogant approach to staff can now be seen in their wanton disregard for their countless policyholders.

What did surprise and shock me, along with all Australians, was the complete failure of our world-class regulatory system to detect and do anything to prevent the collapse of Australia's second largest insurance company. As the member for Wills has outlined, the creation of the Australian Prudential Regulation Authority, APRA, was the centrepiece of the government's response to the Wallis inquiry. The Wallis inquiry was the greatest thing since sliced bread, according to the Treasurer and the Minister for Finance and Administration. It was to take the Australian financial sector forward into the 21st century. But APRA commenced in July 1999 and, less than two years later, we have seen the collapse of HIH—or, as I like to refer to it, `HIH: Howard in Hiding' or `Hockey in Hiding'.

Let us face it: the government got its APRA regulation up because the opposition did not oppose it. We did not oppose it, so the government got in place the system it wanted. I have been extremely critical of APRA since its inception. When APRA appeared before the House of Representatives Standing Committee on Economics, Finance and Public Administration it could not provide adequate responses to concerns from both industry and staff. Comments put to APRA from staff paint a picture of an organisation in turmoil. I would like to quote some of these comments, as follows:

· Previous prudential supervision work was not seen as professional undertaking ... but a bureaucratic effort;

· staff could be easily replaced because the nature of work was not well understood by those driving the process;

· what understanding did exist reflected high-level impressions/principles that, while regulation was of fundamental importance, it downplayed the difficulties attached to the details of day-to-day supervision (the devil is in the detail);

· trust was discounted as a valuable element of the change process and has not recovered (arguably depreciated since);

· conditions are demonstrably poorer;

· priorities are difficult to determine, with the usual pattern that demands keep increasing while the experience base depreciates as staff losses are from the more experienced first;

· focus on the budget appears to be to the detriment of the fundamental business of supervising ... the pilot of the plane is happy as we are burning less fuel than is necessary—although there are two engines on fire, the staff have their parachutes on and the passengers are revolting.

That is how the staff described APRA. APRA, at this hearing, could not respond to any of these things. They fundamentally told me that morale at APRA was okay. This is not the case. APRA was obviously in need of serious attention, but the minister was missing in action. He was too busy talking to the money markets in New York to do the hard yards on what seems to be unglamorous work. But you ask any individual whose house has ceased construction since HIH went down if APRA is important and you will find a very different story.

There were other clues to the minister that he should have been paying greater attention. APRA, in their inaugural report, stated:

Another challenge is to preserve our special expertise on important industry issues. I know some industry groups are worried about this, but I believe we can deal with it.

I do not believe APRA can; I do not believe APRA have. A letter that APRA themselves wrote to the Senate Select Committee on Superannuation and Financial Services states—and this is great:

Despite our best efforts we have been unable to obtain the information in the requested format. Over the period of time concerned the ISC—

the previous body—

had a number of changes not just of staff but also recording systems which have created a significant difficulty in our retrieval of the information.

So they do not have the staff and they cannot even find the information any more. Where has the minister been and why, in light of an actual collapse, did it take several months for anything to actually happen? Why did the minister ignore the reasonable request of the opposition, put to the government in April, just after Easter, to convene a roundtable discussion of interested parties to discuss further action? Now that an announcement of a royal commission has been made, why have we no terms of references or a commissioner, and will the government ensure that in its terms of reference the demands from the opposition that the action of the Howard government ministers and advice given to them by APRA and ASIC are included? The government's handling of insurance industry regulation issues, including the review of the Insurance Act since 1998 and any role played by political donations in the HIH debacle, also become terms of reference.

We need better, more timely answers than we are getting. Regulation is vitally important. This cannot become a bureaucratic infight about who should do what. This is people's lives we are playing with. You only need to speak to Millie and Nick, a fabulous couple who live in my electorate of Chisholm. Nick is successfully running his own small business and Millie has just given birth to their fourth child. They have worked hard towards saving for their bigger, better dream home. This now looks like it will never happen. Not only have Millie and Nick suffered from the collapse of Avonwood, which was building their home, but they have now been advised by the liquidator that the contracts will simply be cancelled because they are insured with HIH. Nick in his last conversation with me said: `Anna, I don't get it. I had insurance. Why isn't it being recognised? Aren't these companies licensed? Now we have a block of land, a rotting frame, a bank loan and no way of getting out.'

Then there is Mr Ian Howe, who is running a business in Pakenham. To protect his business he took out professional indemnity insurance with HIH. The business had never had a claim, and then suddenly they had a claim against them. HIH recommended that they settle the claim, after previously recommending that they go to court. In the end, they agreed to the settlement and signed over a bill of $90,000 that HIH would pay for them. Now, with the collapse of HIH, they are personally liable for this bill. While all of this settlement detail was going on for Ian Howe and his family, HIH was actually under investigation by APRA. If APRA had told the Howe family, they probably would have dealt with this differently. They now would not be facing a $90,000 claim that is going to cripple them, that is going to bankrupt them and put them on the dole queues.

Then there are poor Helen and Mark Horwood of Figtree, New South Wales. They were also building a house. Unfortunately, they did not pick the best builder. He went belly up and they now have a house that is completely worthless. Nobody is going to pick up that bill. They are paying interest on the mortgage of a house they do not have, they are paying rent to live in a house and they are also wondering why HIH—or, more particularly, APRA—did not tell them things were wrong. This all happened in October 2000. Had APRA come in earlier, they would not have been sitting there waiting. They have been waiting for five months for HIH to deal with their claim. They make a very pointed comment in their letter:

Would Mr John Fahey put up with waiting 5 months for an insurance claim to be processed? NO! His claim was perfectly honoured and in a very reasonable length of time. Is that favouritism and political prowess that goes in favour of Mr Fahey?

We the ordinary voting Australians who try to contribute to the wealth of the country and create a secure home and future for our children, are smacked in the face! dragging us down to `dirt value' also.

You cannot begin to imagine the domino effect it is having on peoples' lives ...

-We pay all bills, food, clothing and rates on that demolishable home on our credit card until that bill is beyond our control.

-What else do you use when your husband loses his job because his boss says his `mind is not on the job' ...

How can it be when these things are happening to him? It continues:

The Federal Government watch-dog, A.P.R.A. is a huge organization with a huge responsibility to ALL policy holders Australia wide. We are the victims of the regulators apparent failing to regulate a failing obligatory Insurance scheme.

The fact that HIH took 5 months to process our claim has put a very suspicious cloud over A.P.R.A.

... ... ...

Why do we the ordinary battlers have to bear the brunt of bureaucratic bunglers who can't run a multi-million dollar industry if their mortgages depended on it

Why? This government must be held to account for its failure to ensure that insurance companies like HIH were being properly regulated. Ordinary people like Nick and Millie are classic Howard battlers. Like most Australians, they expect the government to intervene when a disaster like this happens. They expect the government to investigate how and why this collapse happened—not to have to be dragged kicking and screaming to a royal commission. Most importantly, they expect the government to prevent this from happening in the first place. It is no wonder that voters are so cynical about politicians when all they see is Minister Hockey and Prime Minister Howard trying to spread the blame for this collapse, rather than admit that their own regulatory environment was at best inept and at worst culpable. I ask: what did the government know, and when did it know it?