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Thursday, 10 November 1983
Page: 2556

Mr HURFORD (Minister for Housing and Construction and Minister Assisting the Treasurer)(10.21) —I move:

That the Bill be now read a second time.

The main purpose of the Bill is to amend the Life Insurance Act 1945 to strengthen and improve the existing supervisory machinery of the Act and to overcome certain difficulties experienced by the Life Insurance Commissioner with its administration. The more significant provisions of the Bill are those which would amend the Act to allow for the imposition, by either the Treasurer ( Mr Keating) or the Commissioner, of conditions on registration, and to empower the Commissioner to exercise specified controls over certain forms of investments made by life offices.

The Act currently does not provide scope for the Commissioner to register a company subject to conditions. It does, however, contain a number of provisions relating to investigations of life companies and empowers the Commissioner to issue such directions to a company in respect of its life insurance business as he thinks necessary in the light of an investigation. In effect this is a power to impose conditions on the continued registration of a company which has been the subject of an investigation. The processes concerned with undertaking an investigation can be very time consuming and in some circumstances it may not be in the best interests of policy-holders to defer action pending the outcome of an investigation. To overcome this problem the amendments will allow for conditions to be imposed, either at the time of initial registration of a company, or on a previously registered life company without prior resort to formal investigation procedures. Comparable provisions are contained in the Insurance Act 1973.

The conditions to be imposed will be subject to appropriate appeals provisions and must be consistent with the Act's basic thrust of supervising life offices with a view to ensuring their ability to discharge their liabilities to policy- holders. The amendments relating to control over investments will empower the Commissioner to exercise control over certain forms of investments made by life offices in related companies and in trust schemes. In addition, there will be a requirement for the provision of data on such investment activities to facilitate the process of supervision.

In developing these controls, the Government has sought to preserve a balance between allowing companies adequate freedom in their investment decision making and in maintaining industry stability in the interests of the insuring public. The controls envisaged in the Bill involve some changes to certain unproclaimed amendments to section 39 of the Act contained in the Life Insurance Amendment Act 1977, introduced by the former Government. The amendments take account of earlier problems raised by the industry and they do not envisage any restrictions on investment in subsidiaries and in other life companies. However, restrictions on investments in parent or holding companies and investments in companies with the same parent or holding company are considered essential by the Commissioner for the protection of policy-holders. The restrictions on investments in trust schemes, without the prior approval of the Commissioner, to 5 per cent of the assets of a statutory fund of a life company represent his concern that life offices should avoid situations where a significant part of a company's assets are given to some other institution to manage or invest.

In addition to the important changes I have already described, the Bill will provide for the inclusion of a minimum paid-up capital requirement of $2m in respect of companies seeking registration under the Act. The purpose of this amendment is to give legislative backing to a requirement now set by the Life Insurance Commissioner under his registration guidelines. It is relevant that a legislative requirement of this nature is contained in the Insurance Act 1973. The Bill will also effect a number of administrative changes to the Life Insurance Act including a provision to extend the effective period for furnishing of the Commissioner's annual report to Parliament from three months to five months. Both the present Commissioner and his predecessor have found the current period to be unrealistic and the longer period will allow a more reasonable time for the preparation of relevant statistical material. Other administrative changes are concerned with improving the Commissioner's access to the information and documents needed in carrying out his supervisory responsibilities and with including provisions designed to encourage people wishing to carry out the functions of an actuary under the Act to seek qualification through the Institute of Actuaries of Australia, rather than an overseas body.

Finally, Mr Speaker, the opportunity has been taken to seek inclusion in the Act of rights of appeal against various discretionary actions and decisions available to the Commissioner under the Act; changes to the appeals mechanism to bring it into line with other Commonwealth legislation; and to effect a number of formal amendments to take account of current legislative drafting practice. Taken together, the thrust of the proposed changes is to overcome difficulties faced by the Commissioner in carrying out his task of prudential supervision of the life insurance industry.

I would also like to take this opportunity to foreshadow the possible introduction next year of further amendments to the Life Insurance Act. The Government has under consideration a number of other suggestions by the Commissioner for administrative improvements to the Act which have not been sufficiently developed for inclusion in this Bill. In addition, a working group, comprising officials and representatives of the life insurance industry, has recently completed a comprehensive review of the Act. It is expected that the examination of the recommendations of this working group and the Commissioner's further proposals will form the basis for a further Bill which it is intended to put before the Parliament at the earliest opportunity. We will also be considering whether any changes to the Life Insurance Act developed in the light of the failure of Bishopsgate Insurance Australia Ltd might also be reflected in the Life Insurance Act.

Mr Speaker I commend the Life Insurance Amendment Bill 1983 to honourable members.

Debate (on motion by Mr Carlton) adjourned.