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Monday, 7 May 1984
Page: 1669

Senator HILL(8.25) —The Insurance Contracts Bill which the Senate is debating tonight is a result of the Law Reform Commission's report No. 20 about insurance contracts. I remind the Senate that the reference was given to the Commission by a former Liberal Attorney-General, Mr R. J. Ellicott, QC. The reference generally sought a report on the adequacy of the law governing contracts of insurance-excluding marine insurance, workers compensation and compulsory third party insurance-having regard to the interests of the insurer, the insured and the public. I remind the Senate that the Commission was asked to consider in particular whether the terms and conditions presently found in contracts of insurance operate unfairly; whether certain and, if so, what terms and conditions should be mandatory in contracts of insurance; whether certain and, if so, what terms now found in contracts of insurance should be prohibited; whether the practice of incorporating statements made in proposal forms into contracts of insurance provides an equitable basis of contracts between the insurer and the insured; whether it should be mandatory for an insurer to supply to a person seeking insurance written information as to that person's rights and obligations under the proposed contract; whether arbitration clauses in contracts of insurance are operating unfairly to the parties or are otherwise undesirable; and whether the principles of the law of agency in pre-contractual negotiations should be modified to provide greater fairness to the insured. The Commission was then asked to advise what legislative or other matters, if any, are required to ensure a fair balance between the interests of the insurer and the insured.

I commend the Commission both upon the diligent way in which it went about meeting this challenge and upon the comprehensive nature of its report. In particular, I commend the commissioner in charge, Professor David St Leger Kelly of the University of Adelaide. I was impressed by the number and stature of the honorary consultants who assisted the Commission, and I think it important that the contribution of such voluntary consultants to law reform and the legislative process be given proper recognition. The Commission also received a very large number of submissions, both written and oral, and the contributions of these individuals, associations, companies, departments, et cetera, should be acknowledged.

The Bill that the Attorney-General (Senator Gareth Evans) presented was more or less taken directly from the Law Reform Commission's report. It is a document produced by the co-operative endeavours of many within the community who have a particular interest or expertise in this subject. Whilst that does not in any way allow this Parliament to abdicate its responsibility to the Commission, it does mean at the very least that the Bill deserves respect and careful attention . That is the least we owe to those who contributed so much to its development. It is not one of the current Attorney-General's 'it seemed like a good idea at the time' proposals.

The subject matter with which we are concerned is of major importance. Insurance, both general and life, provides protection against economic disruption to society and often extensive personal hardship. As the report noted , the industry, and through it, premiums, play a vitally important role in the financial system of this country as a whole. Also, of course, we are concerned with an industry within which a large number of Australians are employed. The Commission adopted what I think is a good practice, that of preparing discussion papers which were put down for public consumption. It did this in 1978 therefore allowing a further level of community participation.

The Government put down the Bill, which I said is basically the Law Reform Commission's Bill, and then called for public submissions. It has received about 40 submissions and I acknowledge that the Attorney-General has been prepared to make such admissions available to the Opposition. After all that process of consultation, it is of great regret that after such a painstaking step by step approach from 1976, the time of the giving of the original reference, through to 1983 when the Government introduced the Commission's Bill, that the Parliament was treated to absolute disdain by the Attorney-General. He called on the Bill for debate and contemporaneously introduced some 59 amendments all of which were unseen by the Opposition, except for the shadow Minister who was given the amendments on a confidential basis. What is the point of giving amendments to the Opposition for consideration and allowing only one member to have them on a confidential basis? The Attorney-General then expected the matter to come on for debate. In other words, he expected this Senate to debate not only the Bill with which we were very familiar because it was taken from the Commission's report but also some 59 separate amendments that we had not had the opportunity either to see or consider.

I regret that when the Attorney-General was told by the Opposition and the Australian Democrats on that occasion a few days ago that we were not prepared to tolerate such a practice, we were subjected to a barrage of accusations of holding up Government business. It does nothing for the reputation of the Attorney-General that because he is unable, with all of his resources to get his affairs in proper order, he should then treat the Senate and also those whom I have mentioned who have contributed so much to the process of the development of this Bill to such disrespect by expecting the Bill to be treated in that way.

I move on to some of the general matters concerning the Bill, the rationale for the recommendation that was included in the Commission's report, the direction the Commission recommended that the Parliament should take, the style of the Bill and matters of that nature. I accept, as is stated in the report, that insurance contracts are subject to a bewildering variety of laws not only as they are developed by judges but also statutes of the imperial State and Commonwealth parliaments. I accept the need for reform in this field, the need for updating the law and clarifying areas of conflict. I think this part might be reasonably headed 'simplifying and modernising the law of insurance'. From my experience I have no doubt as to the merit of such a goal. I think a case can be made out without the need to resort to finding public dissatisfaction. However, the Commission did attempt to substantiate its case for reform by finding:

. . . widespread dissatisfaction existing among insured who had made claims under their contracts, only to have them rejected.

This appeared to me to be one of the more disappointing aspects of the report because the evidence found that only 2.08 per cent of claims failed on the basis of objections. To reach a fair and balanced conclusion on those rejections some qualitative analysis would have had to be made and that was not done. However, I do not regard this aspect to be of great importance because as I have said I think a case can be made out for law reform without having to prove dissatisfaction on the part of a sizeable number of insurants. However, I think it is a point that ought to be made in passing because I do not think it is good practice for the Commission to adopt to look further to try to substantiate its recommendations by evidence that is not sufficiently strong when a case can be made out without it.

A more difficult question with which I have had to wrestle is whether the reform of insurance contracts is necessary only in relation to non-business insurance. Much of the Bill that appears before the Senate tonight can fairly be described as consumer protection type legislation. It has that style. The language is familiar to us, particularly those of us from South Australia from our consumer credit legislation, consumer transactions legislation and other similar enactments. Obligations to inform, the duty of disclosure, provisions that protect against ambiguous questions being asked and the failure of questions to be answered, provisions to prohibit arbitration, clauses to give notification of expiration, clauses to provide cooling off periods, legibility of writing and matters of that nature might all fairly be said to be included in contracts to protect the interests of what we might generally call the layman.

It has been said to us that this reform is not required by business and therefore a dividing line should be drawn. In other words, this legislation should be simply and strictly limited to consumers and should not cover business that is able theoretically to look after its own affairs. Such a dividing line does exist in some of the South Australian consumer protection legislation. For example, companies are excluded. Particular transactions above a certain value are excluded. I looked to the report to see the Commission's rationale for not separating the two. In paragraph 26 the Commission states:

The Commission has concluded that a general distinction between different classes of insured should not be made. Distinctions of that type are often arbitrary. In some cases they are based on the dollar cost of individual transactions. That would be a particularly difficult criterion to apply in the case of insurance.

A little further on the Commission stated:

A distinction based on areas of insurance--

that is, areas of insurance as opposed to a dollar cost-

would avoid these difficulties. However it might inhibit the development of a composite policy straddling different areas of insurance.

The Commission also stated:

The cost to business of employing solicitors and brokers to avoid the difficulties to which existing law gives rise might well be reduced by simpler and a fairer set of rules applying to all insurance contracts. It could be added to by the creation of two sets of rules and by attendant difficulties of demarcation.

I have satisfied myself that the Bill should not be strictly limited to consumer transactions and I have done so principally for two reasons. The first is that all business cannot fairly be classified within a common net. A large corporation with in-house insurance experts is not in the same position as, say, a husband and wife plumbing team or a team in some other trade. Where is the distinction to be drawn in this regard? It is interesting to note that the fact that there is a distinction was recognised by the Treasury in its submission to the Commission in which it argued that perhaps the protection should be extended to certain classes of small business but perhaps not to corporations in general. I remind the Senate that there are small corporations as well as large ones. In the same way as an efficient taxation system should not lead one to a particular business vehicle being used, neither should insurance law.

The second reason is that there are worthwhile reforms. For example, I mention one in relation to insurable interests to which all those insured should be entitled. On balance, I support the blend reached by the Commission. It gives all the benefits of certain reforms and protections which in practice might be more valuable to some than to others who are less skilled or experienced in this area, but not at any significant cost to those for whom such protections may be unnecessary. Some will argue that there is a loss, and that is the additional cost to the community. The Minister says that the Bill will not have any impact on Government revenue which may be so. However, it will no doubt have an effect on administration costs to insurers, which will be passed on in the form of premiums to those insured. I note that the Insurance Council of Australia Ltd in its letter to the Attorney-General dated 6 February said:

If the Bill is passed, it will introduce procedures, which will substantially increase costs of delivery of the product to policy owners.

The Council added:

I should emphasise that the question of affordability is one that concerns all insurers and any additional costs which are not directly concerned with covering risks, tend to put insurance out of the reach of those who need it most.

The Council called for a critical cost-benefit analysis. Will the cost of meeting the obligations under this Bill be balanced by a benefit to the consumer public? The Council asked itself that question and concluded:

It is our objective assessment that in the circumstances which will be created by the legislation, the cost will almost certainly outweigh the benefit.

However, no cost-benefit analysis is included within the submission of the Council, and I suspect that is because it is really impossible. No doubt the additional costs can be assessed, but on the other hand the benefits remain a value judgment. However, I believe it would have been of help to the Senate tonight if either the Commission or the Council had made an effort to estimate the cost of implementing the Bill we are here debating. The Commission did not do so. It stated the balancing of economic costs against benefits to be the first of its guiding principles. As I said, it then did not go on to analyse such costs. Rather it took the simple alternative of saying that the reforms will improve the operation of the market by enabling respective insurers to be better informed and that that therefore would result in cost savings. I do not find particularly persuasive that part of the report which tends to argue that the recommendations will result in greater market efficiencies. As I indicated, I would have liked more information as to the industry's assessment of the increased costs. However, with those deficiencies I, and no doubt other senators who have been carefully through the Bill, am satisfied that the information- giving requirements are no more than is reasonable. Any additional regulation involves additional costs. Not surpisingly, I am therefore always reluctant to endorse such a spiral. However, legislators have a responsibility to ensure reasonable safeguards for the public, and my balancing exercise-I regret without too much to balance on the other side-has therefore come down in favour of the obligations within the Bill.

That leads me to the next question. It was argued that the insurance industry was capable of solving many of the problems identified by the Commission and could do so at less cost than legislative change. In other words, further self- regulation was argued. It seems to me that self-regulation resulting in the same obligations as provided under the Act would result in much the same costs in any event. Whereas I support as much as possible self-regulation of professional bodies in their behaviour, I think that the Government and the Parliament have a responsibility to set down on behalf of the weaker sections of the community at least basic minimum protections. I do not see that the Bill-I am speaking generally; I will get to some specific concerns in a moment-imposes additional obligations more often than what I would describe as basic minimum protections.

I briefly mention the argument that has been put that life insurance should be treated quite separately and distinctly from general insurance. This apparently was based on the different practices, traditions and problems of the two branches of the industry. Of course, the Bill does in part separate the two. However, I think it should be said that it reflects what appears to be a trend towards blurring the distinctions. Insurance packages now cover, for example, both life insurance and disability insurance. I think separate Acts would offer as many complications as they would resolve.

The matter that causes me particular concern is the very large sector of the insurance industry that will not be covered by this Bill. It will not cover friendly societies, funeral funds, health insurance funds or reinsurance. More importantly, because, I concede, of constitutional restrictions, it will not cover State insurance. I have been led to believe that State insurance amounts to at least one-third of all insurance policies issued. It appears to me that to have two set standards would be obviously undesirable. Furthermore, to allow the State offices a competitive advantage by adopting stringent information provisions would be particularly undesirable. I regret that this matter has not been adequately dealt with by the Government. I believe it to be so important that, as far as I am concerned, it would be fatal to my support of the Bill.

The Attorney-General in his speech covering the 59 amendments, which might be described as his afterthought speech, said to us that the Standing Committee of Attorneys-General was in general agreement that the same legal rules and constraints should apply. He further said that the Victorian Government was preparing legislation to that effect. I find that position astonishing. That speech was made at the same time as he was introducing a further 59 amendments to his own Bill. Today he has presented three further amendments to the Bill. So it appears to be almost impossible that he could represent to the Senate that the Victorian Government is in the process of legislating to put into effect what he himself is proposing to put into effect. It is obvious, at least to those of us on this side of the Senate, that until a few days ago the Commonwealth Attorney-General was not sure what he was intending to implement. Until this Parliament can be certain that each of the States and the Northern Territory-I add that in the amendments the Northern Territory has been treated by the Attorney-General as being in the same position as the States; I think that is important-will implement similar legislation, that there is a definite agreement so that we will not have two levels of the insurance law in this country, I believe it would be unwise for the Senate to pass the Bill.

I am relieved, although a little surprised, that we are not being faced with provisions making certain forms of insurance compulsory, for example, third party property or householders- house owners' insurance, as is the wont of this Government. Fortunately the Commission did not feel entitled to examine such matters in detail in the current report. No doubt we will face such questions in due course if this Government remains in office. Perhaps the Government is concentrating more on its national scheme of general accident compensation with, of course, compulsory levies. However, in general there is a lot in this Bill that I would like to support. I support the intention to reform and update certain parts of insurance law that obtains.

In the short time remaining I will make a few comments on specific provisions. I understand the need for the duty of utmost good faith in insurance contracts. Part II appears to be a clarification of that duty and I support that provision. Part III alters the law of insurable interests and, again, I think soundly so. Part IV deals with disclosures and misrepresentations. In regard to that Part and particularly clause 22, the Commission took a somewhat compassionate view in that it wanted the particular circumstances of an individual to be taken into account; for example, his position in life, mental condition, and ability in education, before determining whether he should have made disclosure. It might be said that that is a somewhat novel position for the law but, as I said, it is a compassionate position and one which commends itself to me.

The industry wished to return to the standard provision of a duty upon a prudent insurer. The Government, in its amendments, appears to have looked for a compromise. It has found what it regards as the compromise of 'a reasonable person in the circumstances'. I understand in law what is meant by 'a reasonable person' but, in this case, I am unsure what 'a reasonable person in the circumstances' means. I am unsure whether the Government is in fact trying to return to what was the original spirit of the Law Reform Commission. I suspect it is not. It has tried to find a half-way house. I suspect what it has come up with is unsatisfactory. I believe there was room for a compromise. I think the compromise came out of the dealings of the fraud provisions that have been mentioned by others tonight; that is, clauses 32 and 56. It is those provisions that also would have made this Bill in its present form fatal as far as my vote is concerned. I do not believe the Senate can be asked to condone fraud as this Government is asking us to do tonight. The compromise that I think was open was that the Government would wipe that idea that it would allow fraud or a level of fraud to be tolerable and upheld the Law Reform Commission's position with regard to a somewhat compassionate provision under clause 22 in relation to disclosure. I think it would have found a compromise that may have appealed more to the industry and I think it would have been a proper compromise, whereas the compromise that is being put to the Parliament tonight I regard to be improper.

Part V deals with the contract and provides for standard cover. I support the concept of standard minimum cover. However, I regret that we are going to be in the dark until we see the regulations. We do not know what the Minister intends in this regard. This point was made strongly by Senator Watson earlier in the debate tonight. I trust that in due course the Minister will put down his ideas for consideration and debate before we suddenly see the regulations appearing.

My concern is the amendment to clause 38 which appears to me to defeat the purposes of bringing unusual clauses to the attention of the insurers. As I understand the amendment, it says that it is sufficient simply to provide the contract. As I read the report of the Commission, that is the type of situation that it was trying to avoid, so that those who were not skilled in insurance matters would have unusual terms specifically brought to their attention. Why the Government has decided to desert the small insured in that matter I do not know. I would have thought that would be something that would particularly concern the Australian Democrats tonight, but they do not seem to have mentioned it. I might say, with respect to the Democrats, that I was disappointed in their attitude to the fraud provisions. To say that they do not really like the way the Government is bringing in the legislation-and to quote them-but they hope that after it is implemented they expect the industry to come back to the Government if it is getting out of hand, I regard as entirely unsatisfactory. The rationale was that otherwise insurance premiums will go up. I would have thought the concept-I am not of the mind to preach morals to the Senate-of whether this Senate should be passing legislation that condones fraudulent activity would be of greater consequence.

I am also disappointed with the second amendment to clause 47 concerning pre- existing conditions which again revert to 'a reasonable person in the circumstances'. I think that is in conflict with the spirit of the Commission's report. I am disappointed with the amendment to clause 40 concerning instalment contracts which reduces the time for cancellation from one month to 14 days after the premium has in fact been paid. I would have thought that one month was not unreasonable in those circumstances.

My time is all but up. I applaud the movement away from privity of contract in clause 48. Part VI deals with claims and I have mentioned my concern with provisions regarding fraudulent claims. Had I the time I would have liked to deal with the question of subrogation which I think is also important. I hope that will be taken up at the Committee stage. In conclusion, I think there is much in this Bill that should be supported. I regret only that because a comprehensive package for Australia has not been put forward tonight and that fraud has been retained I will find it impossible to support the Bill.