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Thursday, 21 June 2001
Page: 28269

Ms BURKE (10:10 AM) —I rise to speak on the Appropriation (HIH Assistance) Bill 2001 in support of the assistance measures to the stranded HIH policyholders, but also to add my concerns about the lack of transparency and accountability in this bill and, in fact, in the whole process.

There are so many victims of the HIH collapse it is difficult to know where to start. One of the most poignant examples that has come to my office is the example of Nick and Millie. They are a fabulous couple who live in my electorate. Nick runs his own successful business and Millie has just given birth to their fourth child—she told me her youngest was getting lonely. I am not sure when she is going to stop! They have worked hard towards saving for their bigger, better dream home. Millie and Nick suffered from the collapse of the Avonwood building company. That was the first blow. Now the liquidator has advised that the contract will be cancelled altogether because they were insured with HIH. In his last conversation with me Nick said, `Anna, I just don't get it. I had insurance. Why isn't it being recognised? Aren't these companies licensed? We now have a block of land, a rotting frame, a bank loan and no way out.' Thankfully, Nick and Millie live in Victoria, a state that was the first to help the victims of the HIH collapse, and they will now have their builder's warranty recognised. This is a terrific example of why we need an assistance package across both the federal and state arenas.

This bill will create a public not-for-profit company that will assess and administer insurance claims from HIH policyholders that were incurred prior to 11 June 2001. Whilst this side of the House fully supports this measure, we are concerned about the glaring lack of regulation that has been put into place to ensure that this company does not go down the same path as HIH. The laissez-faire approach to self-regulation which got the government into this mess in the first place is actually being applied to HCS. They are not even going to ensure that this scheme will not blow out by ensuring appropriate reporting and accountability to this place, which after all is funding the bailout. The total lack of guidelines in the legislation leaves us asking: who and how? Can we be assured that bogus claims will not be paid out? How can we ensure genuine claims will be meet? How can people such as Mr Ian Howe of Pakenham—whom I mentioned in this place on 24 May 2001 and who is now liable for a massive legal bill incurred through an HIH suggested settlement—seek compensation? Indeed, is he entitled? Is the company subject to the Corporations Law? Will it provide an annual report? There is nothing in the legislation that talks about these requirements; the legislation is silent and does not allow for any real scrutiny of the activities of HCS.

I share the view of Labor's shadow Treasurer that it is time for the insurance industry to put their hands into their pockets and contribute to the bailing out of this failure. An industry that boasts $10.9 billion in asset reserves surely could have afforded a contribution to the HIH bailout instead of allowing the totality of the collapse to fall on the shoulders of innocent policyholders and taxpayers. I will be interested to hear from the next speaker, the man who told his party room that it is unfair that Australian taxpayers have to foot the bill when private enterprises collapse. The member for Parramatta would do well to ask the minister for finance why he has not responded to the request by the member for Wills on 12 April to hold a roundtable discussion of all the interested parties—industry, regulators and state governments—that could have looked at and produced a suitable bailout package and a more robust regulation regime for HCS.

There has been a lot of commentary about the appropriateness of taxpayers funding a private sector collapse. I, too, share this concern. Already we have learnt that this package has blown out from $500 million to $640 million in just weeks. We have not actually begun the process of assessing claims yet; not to mention the expense of the ongoing ASIC investigation and the recently announced royal commission. What will be the size of the eventual bill taxpayers are being asked to foot? We can only be left to ponder whether the generous political donations to the Liberal Party from the insurance industry, including a gift of $682,000 from HIH itself, had any bearing on the government's reluctance to make the insurance industry cough up. We will never know that now that the terms of reference of the royal commission have been framed so narrowly to avoid scrutiny of the government's vulnerability in dealing with an industry that has so handsomely lined its coffers. Tony McGrath, the provisional liquidator, in his report of 25 May found that losses could be anywhere between $2.7 billion and $4 billion. Probably the most alarming single comment in the report was this:

The very substantial losses—

from HIH—

are not restricted to the last nine months of operation.

The direct implication from this statement is that HIH was potentially insolvent well before it was placed into voluntary liquidation on 15 March of this year. It is becoming increasingly clear that there are a range of bodies and people that must be made accountable for their advice, action and, in some cases, inaction.

Firstly, APRA: I have been quite vocal in this House on my disappointment with APRA. We were promised a world-class prudential system, yet it appears APRA has performed very poorly in delivering on its charter. No-one is saying that APRA had a crystal ball, but it clearly took its eye off the ball when it came to HIH. The most recent example of this was revealed during a Senate inquiry last week when APRA officials admitted that the Australian Government Actuary stopped producing regular reports on all insurance companies after 1998 to save a mere $60,000! The ridiculous cost cutting measure may well form part of the reason why the risk exposure of HIH was not apparent to APRA in the months leading up to its collapse. Surely a comprehensive actuarial audit would have discovered the unsustainable insurance risks being taken on by HIH. I look forward to the royal commission findings on the regulatory failure of APRA and on of course, by direct implication, the failure of the responsible minister and the government to put in place a regulatory framework that would have brought this to their attention much earlier and may have prevented the damage done. The government may have framed a narrow set of terms of reference, but they cannot hide from the fact that they let the policyholders of Australia down by failing to see this coming. Secondly, it is important that we discover the role of the company's directors, auditors, CEO, employees, actuaries and advisers to HIH. At least this aspect of the collapse appears to have been adequately provided for in the terms of reference.

In the minister's second reading speech on this bill, he said he would fast-track legislation reforms to the general insurance industry. This is way overdue. I am not sure of your definition of `fast-track' but mine does not include a two-year wait for a review of outdated and obviously faulty legislation. Why did we have to have the largest corporate collapse in this country for this government to act on what was indeed a matter of urgency? The Governor of the Reserve Bank, in his appearance before the House of Representatives Standing Committee on Economics, Finance and Public Administration, probably let part of the reason out of the bag:

When we move to general insurance we really have to come down from that level—

he is talking about coming down from the level of standard of supervision of banks. He said:

We are dealing with a piece of legislation that is pretty old—it dates back from 1973—and an awful lot of changes have occurred since then. Firstly, the ISC and ... APRA have tried extremely hard to update that legislation and body of regulation, and ... have met with considerable opposition from the industry—a degree of opposition that has surprised me, considering my experience with the banking industry. If there is one ... thing that has come out of HIH, it is that that opposition has now finally retreated and we are going to see some action there pretty soon.

But the most interesting aspect of his reply was:

APRA has already worked out what the regulations should be. They have had all the discussion papers and they have got a new model. They are just waiting for the legislation.

So APRA has been sitting there—it has done it, it is waiting for the legislation, it is waiting for this government to act—so we are now going to `fast-track' something, but we have had to see an enormous collapse and we have had to see innocent people in Australia suffer, and they will be suffering for years to come. So what does this say about this government? I think it says that this government is a captive of the insurance industry and has failed to act. This side of the House welcomes and supports the assistance provided by this legislation to victims of the HIH collapse but continues to have grave concerns about the lack of reporting and accountability outlined in this bill. I commend the bill to the House.