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Thursday, 1 December 1983
Page: 3140

Senator GARETH EVANS (Attorney-General)(4.22) —I move:

That the Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows-

The major purpose of the Bill is to amend the Insurance Act 1973 to strengthen the minimum financial standards to be observed by insurance companies authorised under the Act and thereby contribute to improving the financial position of the industry. It will also seek to effect certain other improvements in the existing system of supervision of those companies. This Bill represents, in the main, a consolidation of the Insurance Amendment Bill 1982, introduced into Parliament on 29 April 1982, and amendments to that Bill which were introduced into Parliament on 9 December 1982. I think it will be appreciated by all concerned with the industry that the amendments proposed in this Bill are both urgent and necessary and I would not dispute with those who might argue that a strengthening of the supervisory arrangements is long overdue. In very large part the provisions of the Bill are of a bipartisan nature and they are clearly in the interests of industry stability and the insuring public. They have been strongly supported by successive insurance commissioners and have the support of insurance industry organisations representing general insurance companies.

The main strengthening of the Act will arise from the provisions in the Bill concerned with increasing the minimum paid up capital and solvency requirements to be met by general insurance companies. These increases will be subject to appropriate phasing-in arrangements as provided for in Part III of the Bill. The Bill also contains amendments to improve the existing supervisory machinery. Some of the more important changes within this latter category are concerned with increasing various monetary amounts in the Act, including financial penalties, to bring them into line with present day conditions; provision for improved requirements relating to accounts; more comprehensive quarterly returns ; and measures to facilitate the revocation of authorisation under the Act where a company is withdrawing from the industry. In view of the Government's decision to retain the Housing Loans Insurance Corporation the provisions concerning the sale of the Corporation that were incorporated in the 1982 Bill, introduced by the previous Government, are no longer necessary and have been omitted from the current Bill. The Government has carefully considered the provisions of paragraph 15 (1) (d) of the 1982 Bill which would limit the extent to which premiums held by insurance intermediaries would be treated as assets of an insurer for solvency purposes.

Following decisions taken by the Government and announced by the Treasurer (Mr Keating) on 17 October 1983 to introduce legislation to regulate insurance brokers and agents, the Government has decided not to proceed in this Insurance Amendment Bill with the provisions reflected in paragraph 15 (1) (d) of the 1982 Bill. I should add, however, that it is the Government's intention to seek to incorporate provisions dealing with the practice of extended credit in the proposed legislation for regulation of insurance brokers and agents. It is the Government's intention that that legislation be introduced later this year and that it will lie on the table until the Autumn sittings 1984 to afford interested parties an opportunity to comment on the legislation. I would also like to draw to the attention of the Senate the prospect of further amendments to the Insurance Act, which, for certain reasons, have not been incorporated in this Insurance Amendment Bill.

Work has been continuing on the formulation of possible proposals to amend the Insurance Act 1973 in relation to the activities of mortgage insurers. The issues involved are complex and likely to take some time to resolve. Accordingly the Government has decided not to delay introduction of the amendments contained in this Bill until those issues are resolved. The Government is aware of, and shares the concerns resulting from, the failure of Bishopsgate Insurance Australia Limited. It is also conscious of the proposals that have emerged from various quarters for amendments to the Insurance Act and improvements in the supervisory arrangements with a view to minimising the risk of future occurrences of this type. In considering such proposals it is important to appreciate that the primary purpose of the Act is the establishment of a system for the prudential oversight of authorised insurance companies with a view to ensuring that the industry operates on a sound financial basis and is one in which the public can have confidence. The system requires compliance with certain minimum standards, and is directed at ensuring a company's ability to meet its liabilities. However, no matter how well devised any system might be it cannot wholly prevent fraudulent practices, although the Insurance Act and other areas of legislation dealing with business standards and practices, such as the companies code, should of course seek to minimise as far as is practicable, the opportunities for fraud. The circumstances surrounding the failure of Bishopsgate are being closely studied by the Government. This examination is taking into account the efficacy of possible new measures, their practicability in administration and associated costs and bearing in mind the need to balance the community benefits deriving from any new legislation with the interests of maintaining an efficient industry. It will be our intention to consult with the States, industry and other interested groups in the near future on this and other insurance matters. Following those processes it would be our intention to bring forward appropriate amendments at the earliest opportunity. My comments dealing with processes following on the Bishopsgate collapse in no way detract from the urgency of the amendments now proposed in this Bill. Indeed, recent developments in the industry point to the need to strengthen the provisions of the Act. These amendments do that and I commend the Insurance Amendment Bill to honourable senators.

Debate (on motion by Senator Kilgariff) adjourned.