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Monday, 7 May 1984
Page: 1674

Senator DURACK(8.57) —The Insurance Contracts Bill was introduced by the Government to give effect to the report of the Law Reform Commission dealing with insurance contracts; that is, the law relating to the terms and conditions between people who are wanting to insure various items against certain contingencies, and insurance companies. That report was submitted in 1982. It has two primary objectives: Firstly, to provide a uniform set of rules to govern the law of contract between the insured person and the insurance company, and secondly, to improve the flow of information to prospective policy holders so that they can be more informed about the choice they wish to make. Those are the arguments that are presented in favour of this legislation.

The legislation has certain benefits. It provides for certain standard forms of insurance and for better notification than applies at present on aspects of the proposal. However, it falls into the category of legislation which, although on the face of it is designed to improve information, the end result is largely greater expense for those who have to provide the information and little prospect that those who receive the information will read it, understand it or make any valuable use of it.

A standard form of insurance contract might be in itself beneficial, nevertheless it fails to take into account that this area covers a great variety of circumstances and different forms of cover are required for various businesses and the various contingencies that arise. Although in theory it sounds very nice to have a standard form of insurance, it is just not a practical proposition because one has to have special forms of contract for special purposes, indeed even for individual purposes and problems. As I said, it is one of the pieces of law reform which are a matter of great appeal to the Law Reform Commission, to people who have great pretence as law reformers, such as the Attorney-General (Senator Gareth Evans), consumer organisations and others who believe that simply by passing legislation all problems can be resolved.

As I said, although the Bill has superficial attractions, it has very many problems as well. I propose to deal with these problems in the course of my speech this evening. I should say at this stage that, for reasons which I will outline, the Opposition is opposed to the Bill and will vote against it. It appears that the Australian Democrats, who have already indicated their point of view, will support the Bill. Therefore, on the numbers in this place, the Bill will be passed despite the opposition to it by the Liberal and National parties. In that event we hope that, at the Committee stage, honourable senators will consider and will pass a number of amendments to the Bill which at least will improve it.

Although the Bill purports to be a Bill to provide a code of law for insurance contracts in fact it will in no way cover the whole field of insurance contracts . Indeed, there is a threshold question as to whether we want a separate law of contract covering insurance. We have a very well developed law of contract in this country which provides basic rules and principles governing contractual relations between people in whatever field of endeavour they may apply. Yet we have here a claim that there should be some special rules for insurance and, in particular, contracts relating to insurance-a relationship which is only one of a vast range of contractual relationships into which people enter. Even if we assume that it is beneficial to have some special rules relating to insurance contracts, this proposal will in no way cover the field of insurance contracts. In the first place it does not apply to contracts entered into with State government insurance offices. Everybody is familiar with the fact that in, I think, every State there are State or government-owned insurance offices that do a great range of business-in fact, they do one-third of all the insurance business in Australia-yet they are not touched in any shape or form by this legislation.

The Attorney-General has come into this place and has said that he proposes to open up some discussions with the States to try to get some uniform laws with the States consistent with the principles of this legislation. What a sloppy way of legislating. This is consistent, of course, with the usual bull-at-the-gate methods of the Attorney-General. Instead of doing his homework, the groundwork and the difficult work first, because of his great obsession with satisfying his pretensions as a law reformer, he rushes in with legislation before he has a reasonably consistent proposition to put to this chamber which will apply to the insurance arrangements which people wish to make with State government insurance offices as well as with every other private insurance office throughout Australia.

So the Bill's first great deficiency is that it applies only to two-thirds of the insurance business, at the most. Honourable senators will see in a moment that it does not apply even to that. It does not apply to various forms of insurance, such as marine insurance, workers compensation insurance and medical insurance. It does not attempt to cover, nor can it cover, the problems of reinsurance. The reinsurance market is a very important one for Australian insurance companies. Because of the very large risks that they assume in many of their contracts they want, in betting parlance, to lay off the bets that they have made. I think that term is probably more understandable to Australians than talking about reinsurance. These companies enter into these arrangements with larger insurance companies overseas. That is what is meant by reinsurance. The Bill cannot apply to those arrangements, yet that is a very important part of the business conducted by Australian insurance companies.

The Government, having decided more or less to give the green light to the recommendations of the Law Reform Commission, introduced this Bill which is more or less along the lines of the Bill recommended by the Law Reform Commission. That, as I have said, is a very premature way of proceeding. I have pointed this out to the Attorney-General on a number of occasions in other debates. It is important that any report of the Law Reform Commission should be closely studied and its recommendations closely tested by those in the industry who are affected by it. The need for that is clearly emphasised by the history of this Bill after it was introduced by the Government several months ago. There have been considerable criticisms of it by the industry and many submissions pointing out its deficiencies, despite the fact that it is a subject that has been under lenghty study by the Law Reform Commission. This is a pattern. Recommendations of the Law Reform Commission are constantly shown to be defective in many ways once the deficiencies are unveiled. This Bill is no exception. As a result of the Government seeking the views of the industry after it introduced the Bill-it should have done so before it introduced the Bill-it has introduced no fewer than 59 amendments to this Bill. When we go to the Committee stage the Bill that we now have before us will be virtually emasculated. The Minister for Education and Youth Affairs, Senator Ryan, will be familiar with that because she followed the same principles with the Sex Discrimination Bill and introduced over 50 amendments to that legislation.

The Government will be introducing 59 amendments to this legislation when we go to the Committee stage in a short time. But I have to give some credit where credit is due, as the Opposition did even to Senator Ryan, as she will remember, in the debate on the Sex Discrimination Bill. We gave her full recognition for the valuable amendments she made, even though she should have thought of them long before she did. Even the Attorney-General, somewhat to my surprise and the surprise of other honourable senators, has seen the light and will be introducing 59 amendments to this legislation, that is, if he is in the chamber, which he does not seem to have been for most of this debate. The Opposition believes that these amendments will be useful if we have to be saddled with a Bill such as this. Because the Democrats will support this legislation it seems as though we will be saddled with it, the insurance companies will be saddled with it and the insured people will be saddled with it and will have to pay higher premiums. That fact does not worry the Democrats; they will still support this legislation. They have some theoretical views about legislation solving everybody's problems.

However, the amendments that the Government will move do not really cover the Opposition's concerns about this Bill. We believe that this Bill is a further example of anti-competitive regulation which is foisted upon the business community with little regard for the cost of that regulation. There is no doubt whatsoever-everybody who has looked at this legislation concedes-that this Bill will result in increased costs to the insurance industry. These increased costs to the industry will simply mean higher premiums. The consumers, the people who want insurance, will have to pay for it. It is time that people realised that when governments bring in regulations somebody has to pay for it. In the end it is usually the poor old consumer that has to do so. This Bill is no exception to that principle. It will result in higher premiums, as surely as we are in the Senate chamber this evening debating it. These costs, however, will have to be borne by the private insurance industry. In many cases small businessmen seeking insurance will have to pay. I hope that those in the small business community will remember that the Australian Democrats, by supporting this Bill, will impose higher costs on them. The State government insurance offices will not have to pay those premiums because they are not affected by this legislation, as I have said. This will be a benefit to the State government insurance offices and will enable them to offer more attractive terms in the market place. The effect of this Bill will be at the expense of the private insurance industry and will assist the State government insurance industries. It also has major implications as to the share of the market between the public and the private sector.

For a Bill that has such important consequences one may well ask why it is necessary. Of course, that does not trouble the Attorney-General very much in his pursuit of a reputation as a law reformer. He wants to be able to implement as many reports of the Law Reform Commission as he possibly can without regard to anybody's costs or their necessity in the theoretical pursuit of law reform. It is very interesting to find out what is the argument in favour of this legislation. It seemed to me that the best place to turn for some justification was the Law Reform Commission itself. It has recommended this reform. Presumably , it gave the grounds on which it recommended it.

The Law Reform Commission, headed by Justice Kirby, justifies the need for this reform upon what it says is widespread dissatisfaction which exists amongst insured people who make claims. It gives statistics on the subject. It did a test on the subject in 1977 when it was first starting on the reference. Those statistics show that during the testing period in 1977, 2.08 per cent of all claims were rejected. Just over 2 per cent of all claims were rejected. That is is not a bad record for insured people, I would have thought. Ninety-eight per cent of claims are paid without dispute by the insurance industry. That might have been thought to be a commendation of the insurance industry in this country but that did not satisfy the Law Reform Commission, Mr Justice Kirby or the Attorney-General.

Let us look at the matter more closely. Of the little over 2 per cent of the claims that were rejected, approximately 78.5 per cent were rejected because the loss was not even covered by the policy. In other words, people had made claims for losses which were simply not covered by their contracts. Is it any wonder at all that those claims were rejected? But apparently that is some ground-it could be the only ground-for this widespread dissatisfaction. Are we to legislate for people who are so uninformed or who for other less worthy reasons are prepared to make such claims? That leaves only 0.5 per cent of claims rejected upon grounds related to the substance of the policies.

There may have been some genuine disputes about those claims, and that is understandable. But the number is very small indeed. So it must be concluded that only a minute proportion of the claims is unfairly or improperly rejected. In those cases there are mechanisms for their resolution. The one and only reason given by the Law Reform Commission is widespread dissatisfaction. On its own research, its own statistics, it has lamentably failed to establish that claim. I regret to say that this is a classic case of law reform for its own sake-what I call theoretical law reform. When we give the Law Reform Commission a reference, of course it will come up with recommendations that something be reformed. Whoever recommends anything to put itself out of business? The Attorney-General, we know, is a professional law reformer who is determined to have some statistics of his own to show the number of law reforms he has introduced. He brings forward this proposal for the same theoretical reasons.

Senator Jack Evans —Who gave them the reference?

Senator DURACK —I certainly did not.

Senator Gareth Evans —Your Liberal predecessor, Mr Ellicott, did.

Senator DURACK —If he wanted to give the Law Reform Commission the reference, that is fair enough. Presumably he thought it may discover some good reasons for making a recommendation. The Law Reform Commission did not come up with any statistics which established the need for reform. Because a reference is given to a law reform commission does not mean to say that it has to come up with reform. It could say that it is not necessary. The Commission did not say that. This is something we have learned about the Law Reform Commission. It seems that if we give it a reference it will recommend reform, whether it is for its own sake or for good reasons. The Law Reform Commission in this case has not come up with any statistics which justify the major reforms it proposes in this case.

I have already said that this proposal applies to only two-thirds of the insurance business. It does not apply to State insurance. Another important point to remember is that the State Government insurance offices have a predominant part of the consumer type of insurance, such as motor vehicle and household insurance. These are the types of policies that are the target of the Bill. Yet those offices will not be affected unless the Attorney-General manages in the future to come to some agreement with the States that they will pass complementary legislation. I have already dealt with that matter. He has not embarked upon that exercise. I would like him to tell us what hope he thinks he has of getting the States to agree to complementary legislation of that kind. As I have already said, the private insurers will be substantially disadvantaged as against State insurers.

Another problem with the legislation-I think I foreshadowed it earlier-is that the class of insurance business which it covers is diverse. State insurance is excluded as well as other forms of insurance, such as marine insurance and medical insurance. Probably not much more than 50 per cent of the insurance business of this country will be covered by this Bill. But that section of the market itself is diverse. Certainly a lot of it deals with consumer insurance. Senator Hill has indicated that some small businesses and even corporations will be covered. Perhaps they need a little protection by legislation of this kind. But the fact of the matter is that it also applies to large businesses which have some particular insurance requirements which require special treatment. They certainly do not need the sort of protection that this Bill provides which, by and large, is directed to consumer needs. I concede that there are problems in trying to divide it and to make it apply only to consumers. But generally speaking, it is only consumers who really may be thought to require this type of assistance. As I said, there are many large consumers in this field. For example , the insurers of Broken Hill Proprietary Co. Ltd and other large companies will still be affected by this legislation. They will all be affected by higher costs of insurance for something they simply do not need.

I have also indicated that the Australian insurance market is not an entity unto itself. It relies heavily on reinsurance. At present Australian insurance law is similar to the law in other countries where major reinsurance is undertaken. It is easy to find reinsurance for Australian policies at competitive prices because of that fact. That will be changed and that, again, will add to the costs that people seeking insurance will have to pay. So the Australian insurance law will be radically altered and as a result there will be costs for everybody who seeks insurance. Indeed, the question of reinsurance has been found to be a problem in New Zealand, which has enacted the same sort of amendments.

For all of the reasons which I have outlined, the Opposition will oppose this measure and will vote against the second reading of it. We do not think that the small benefits which it may have will justify this exercise, that they are outweighed by the costs to people who seek insurance. For those reasons we believe the legislation should be opposed. It is largely theoretical; it is reform for reform's sake. If, unfortunately, as appears to be the case from the attitude of the Democrats, this legislation is passed, it needs to be extensively amended. Although the Government has proposed 59 amendments, there are still other major amendments which should be made to it.