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Monday, 18 June 2001
Page: 27781

Mr MURPHY (10:30 PM) —Tonight I wish to draw to the attention of the House that many constituents in my electorate of Lowe are outraged and indignant at the necessity for the government to socialise the debt and liability left in the wake of the HIH Insurance collapse. They are left asking the question: why should I be expected to pay for the incompetence of HIH Insurance, the so-called `captains of industry', the `big end of town', the `experts'? When the going is good, these corporate fat cats will demand an almost godlike reverence. They practically dictate to the ordinary policyholder—those who rely on the mercy of the insurance companies who rule this monopoly with an iron fist.

The Parliamentary Library's briefing titled HIH Insurance Group Collapse, updated on 11 June 2001, notes that, according to the HIH 2000 annual report, the company received gross premium revenue of $2.8 billion, had total assets of $8 billion and total liabilities of $7.1 billion, with net assets of $900 million. By 15 March 2001, the said text notes that HIH received approval from the New South Wales Supreme Court to place HIH into provisional liquidation. The HIH collapse is attributable to monumental mismanagement and plain incompetence, embracing payment of too high a price for FAI Insurance, too rapid an expansion, unsupervised delegation of authority, extensive and expensive reinsurance arrangements, underpricing of their products, alleged false reports, fraud and self-dealing. Following provisional liquidation, both the New South Wales and Commonwealth governments announced various rescue packages to assist aggrieved policyholders of the former insurer. The Parliamentary Library paper I have already referred to notes that the New South Wales government responded on 11 May 2001 by announcing a $50 million package to compensate motor accident victims and home owners affected by the collapse.

The New South Wales Treasurer, the Hon. Michael Egan, deserves special mention for his leadership and swift response to the HIH crisis. The text further notes that the Commonwealth government responded to the collapse of HIH by announcing, on 15 May 2001, the royal commission and, secondly, by providing a package worth $500 million to assist those people in hardship as a result of the collapse of HIH.

How could it be that a collapse of this size could occur, especially given the amount of prescriptive regulation that governs the insurance industry in Australia? What were the regulators doing? What were the auditors, the investigation teams, the field teams, and so on, doing? On 24 May 2001, I asked the Minister for Finance and Administration question No. 2591 on notice about the extent of the terms of reference of the royal commission into HIH and the role of the Australian Prudential Regulation Authority. To date I have heard nothing from Minister Hockey.

Many Australian industries have developed an insidious culture of either total or practical self-regulation. This is certainly true of industries at the big end of town, such as the banking and insurance companies. They increasingly see themselves as above the law and impervious to criticism. They have lost any sense of their moral obligation. Whether it is the prudential obligations in the insurance industry, fiduciary duties or other ethical relationships, the culture of self-regulation has led only to cost cutting on the part of government agencies that attempt to minimise their bottom line investigation and compliance costs. The prevailing culture is for these `captains of industry' to behave as a de facto government. These corporate giants claim to be the experts, and when they fail they expect the taxpayer to foot the bill for their dishonesty, their incompetence, their greed and their stupidity.

When I see the apparent ineffectiveness of APRA or wrongly named institutions like the Banking Industry Ombudsman, I understand why corporate debacles like the collapse of HIH are all but guaranteed. The Howard government must take this opportunity to review all corporate governance and regulation in Australia. This government must seize this opportunity to put teeth back into the government watchdogs that are now nothing more than toothless tigers. This government must admit that regulation is a public ministry. The regulator must be independent of the person or thing being regulated. The regulator must be indifferent to the outcome. Finally, the government must place the public interest first, get the royal commission into HIH moving and hand the royal commission the widest terms of reference to ensure justice for all.