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Wednesday, 23 May 1973
Page: 2535

Mr SPEAKER -Is leave granted? There being no objection leave is granted. (The document read as follows) -


Mr JACOBI - I thank the House. Tens of thousands of policy holders have needlessly suffered hardship, anxiety and financial loss because of the failure of previous governments to update the existing Act - that is, the Insurance Act 1932-1966. After almost a quarter of a century of Liberal Government, action is now being taken. We should bear in mind that during this time one could have confidently assumed that governments would have learnt from the United Kingdom experience in this field and would have foreseen the need for continual updating and surveillance of the Regulations and the Act. As far back as 1870 the United Kingdom experienced the failure of 2 large insurance companies, the result being that the United Kingdom Parliament passed the Life Assurance Act of 1870. Subsequently the United Kingdom witnessed the failure of a further 2 companies in the 1920s and as a result of the report of the Clauson Committee further powers were given to the Board of Trade in 1933 and again in 1935. The failure of the Fire, Auto and Marine Co. and a number of motor insurance companies followed in the 1960s despite the 1946 and 1958 Acts, the result of which was that Part IV of the Companies Act of 1967 was brought to bear.

Despite the 1967 Act in Great Britain, which in fact was the 1958 Act with layers of the Companies Act of 1967 placed over it, the failure of the Vehicle and General company occurred in February 1971. As a consequence a completely new Bill is currently before the United Kingdom Parliament. The deplorable consequences of the Vehicle and General failure - and it had its effects here through its subsidiaries in Australia - were that overnight 10 per cent of motorists in the United Kingdom were left without insurance cover, lt is estimated that arising out of the failure of Vehicle and General the established companies within the insurance industry will probably have to meet a bill of $ 12.7m because of the undertaking given in 1946. The actual failure of Vehicle and General in Britain caused an estimated loss in excess of $36. 3m. However members of the British Insurance Association sustained a loss of $56. 3m on motor insurance in 1970. One can assume therefore that if the insurers get this bill of $12.7m from the Motor Insurers Bureau they will have little choice but to pass it on to the consumer. Regrettably it is always the consumer who has- to pay. I have read the tribunal report on the Vehicle and General crash in Great Britain and it clearly revealed that the Board of Trade had the responsibility but regrettably not necessarily all the power required to do what was needed. Equally disastrous have been the effects in this country for exactly identical reasons.

This Bill, like that currently before the United Kingdom Parliament, is the net result of company crashes. This Bill can be summarised as follows: It raises or permits to be raised existing minimum financial standards. It emphasises the need for greater surveillance by the Government. It gives the Government more flexible powers to intervene if the need should arise. The new Bill is intended to perform a limited but important function, that is, to prevent unsound companies from undertaking or continuing in non-life insurance business. The preceding Bill, drafted under the aegis of the previous Liberal Government, when it was introduced, contained a number of imperfections and omissions in both drafting and substance. This Bill has rectified both.

Whilst I compliment the Treasurer (Mr Crean) on this Bill, I feel he would be the first to admit that it is deficient in many respects. The seriousness of the problem, particularly in the field of motor vehicle insurance, makes urgent legislative action imperative, and to this end I support the Bill despite the need for additional regulation, so important to the stability of the industry. What one must aim to achieve is avoidance of the necessity for governments continually to fight rearguard actions or the slamming of .the stable doors after the horse has bolted. Governments are obliged to protect the public against com.panies which are not soundly based and which undertake risks that, contrary to the interests of the policy holder, have proved to be improper and impossible to sustain. Surely, as recent events have demonstrated, voluntary controls, however good, have been totally inadequate. One could argue that the industry itself has failed and has passed the responsibility on to government. I note that the honourable member for Curtin (Mr Garland) in his speech put excessive weight on the needs of companies involved in the industry but we never heard an utterance about protection for policy holders. Whilst it may be true that the industry itself has failed, in my view it has demonstrated beyond question that the whole field of insurance is too big and too complex to be operated entirely by voluntary control. It is a fact that, with the exception of the United Kingdom and Iceland most Western European and Scandinavian countries have thought fit in some measure to legislate and as a consequence to regulate premium rates, policy conditions, advertisements, the vetting of investments, and competency of directors and managers. But equally important is that they have regulated to protect their indigenous companies and markets from overseas control and plunder.

I am the first to concede that the insurance industry is an extremely complex one. In the field of non-life insurance this Bill encompasses 383 companies plus 1 15 brokerage firms, which are largely covered under the existing Act - a total of 498 companies. Annual outgoings from Australian policy holders is of the order S of Si billion. I am equally conscious of the f need for sound legislation directed towards the protection of both policy holder and share holder against unscrupulous predators, the result of which has been the extraordinary number of company crashes which have had such devastating effect on the industry. Above all we must acknowledge that a sound and well regulated insurance industry is an integral part of the national economic structure. In dealing with this crucial factor of sound legislation I refer to the Minister's second reading speech. He had this to say:

In this connection the Government has received a proposal from the honourable member for Hawker (Mr Jacobi) that a committee of experts be established to examine ways in which the insurance legislation cao bs strengthened and improved.

My proposal for setting up an expert committee of inquiry and drawing up terms of reference is, I believe, a constructive approach. It stems from my having read in depth the recent debate in the United Kingdom Parliament, that is in the House of Lords, dealing with the United Kingdom Insurance Bill. It reinforced my view about the complexity of the industry and the adverse effects that could eventuate as a consequence of amending legislation which has not first been the subject of in depth examination or indeed which has been hastily drafted. Such amending legislation might be as questionable as having not legislated at all.

I take this opportunity to supplement my proposals and request that the Minister give consideration to the following 2 aspects. Firstly, that the committee be directed to confine its initial examination of issues of priority to enable recommendations to be formulated quickly and considered and debated in this House and then embodied in the new Act. Secondly, that the expert committee, once having completed its investigations in relation to its terms of reference, be retained as a standing committee so that areas or issues of conflict may be quickly examined and recommendations tabled, for such a committee will serve as a valuable adjunct to the Parliament, the Insurance Commissioner and the industry as a whole. I believe that the time has come for a thorough, expert and impartial survey of the insurance industry in Australia, in all its aspects.

Whilst I admit my proposal for the expert committee and its terms of reference are limited to the industry, this Bill is structured to regulate it. I take this opportunity to outline some of the areas which I consider warrant urgent investigation: The vital question of entry into the insurance business; the state of the insurance industry generally with particular reference to the restrictive practices common within it; control of insurance company cover and among other things the question of foreign ownership and its costs; the honesty and efficiency of management; the control of excessive remuneration or dividends; the representation and protection of policy holders and shareholders. Quite frankly I think we ought to seek to increase the protection of policy holders in a number of ways. Firstly, with regard to cover there are many policy holders who find that most of the terms of a policy are in small print. As a consequence they find they do not have the cover they thought they had insured for. It may be possible therefore to have standard forms of cover for various categories of insurance.

We might also further protect the policy holder on the question of the invalidation of his policy through what I might call 'involuntary non-disclosure' on a proposal form. I understand that cases have arisen where a proposal form had not asked the relevant question so an answer had not been given but having regard to the nature of an insurance policy, which we all understand, the policy had been held to be invalid. There is thi allegation that companies discriminate against some women. Why do some companies pay claims ex-gratia while others do not? What are the provisions in respect of disputed claims? Does the policy holder get a fair hearing? Does he have a sufficient right of appeal? This is an area of consumer protection which has received insufficient attention, yet it is one which may result in greater hardship to the individual than any other area. It is to be hoped that legislative measures such as the present Bills will considerably reduce this rate of insolvency among insurance companies. But what if insolvency does occur?

How are policy holders to be protected in respect of premiums paid to a body which cannot meet potential obligations because policy holders are unsecured creditors? The consumer has to go to the added expense of re-insuring and, more importantly, in respect of liabilities to others for which his contract for right of indemnity has become valueless. Such people must be protected. Such a survey must arrive at the fairest and most efficient way of providing this protection.

A further question of concern to the consumer and the country, is that of the methods by which insurance companies obtain their business. Misleading advertising has been extensively used and unfulfillable inducements have been offered by a few companies to the detriment of the great majority of honest firms. But even the practices of reputable firms may be undesirable. I note that in the United Kingdom Bill there is provision in clause 38 which asserts power to make regulations as to the form and content of insurance advertising. It should be ascertained to what extent the cost of insurance has been increased by the unnecessary employment of agents or insurance brokers and also what is the place, the role or the standards of conduct for both the agent or broker in the industry. In the past 3 years I have continually pressed the preceding Government - and I will do likewise with this Government - to introduce legislation to cover insurance brokers. Another question to be determined is the extent to which agreements or understandings between insurance companies and other financial intermediaries restrict the freedom of choice of the individual. Those areas need to be investigated urgently and legislative protection is crucial if policyholders, shareholders, the industry and the community as a whole are to have the protection and the stability that they deserve.

There are 2 aspects of the Bill on which I want to pass some comment in depth. Firstly, I draw the attention of the House to Part VI of the Bill which deals with the insurance tribunal, provision for which is set out in clauses 63 to 92 inclusive. I pay tribute to the Minister and to the Government for including this part in the Bill. I draw the attention of the House to what can perhaps be said to be one of the most important provisions in the Bill, the appeal provisions which are found in clause 75. Basically the clause provides for a safety valve. It sets up machinery for appeals against administrative decisions and in my view these provisions could well be inserted into a number of other Acts of this Parliament.

The second aspect relates to Lloyds. I do not wish to raise this in the Committee stages of the Bill. I feel it ought to be given consideration now by the Government. This Bill will meet a long overdue need for collecting comprehensive statistics on this vital multimilliondollar industry. All companies will supply these statistics except one. The only exception, oddly enough, will be Lloyds for whom discretionary provisions are set out in the Schedule to the Bill. Complete statistics are essential in order to understand and supervise the industry. Prior to the introduction of this legislation we have never been able to get those statistics. I feel that a precise date should be fixed for Lloyds to submit the same type of returns as any other insurer, if Lloyds wish to operate in this market. I see no reason for the blatant discrimination between Australian companies and Lloyds.

Let me conclude on this note: I have no doubt that there will be cries of alarm from some sections of the insurance industry. I noted that the honourable member for Curtin raised such cries. The industry will have to put up with some semblance of regulation because the impact of company crashes are disastrous for the people who count most - the policy holders. I have no doubt that when the industry hears that it is to be investigated there will be cries of alarm. The reactions of the industry are easily predictable. But no honest or efficient company need be afraid of an investigation. Such companies will only benefit from the elimination of unworthy competitors and their reprehensible practices. All important institutions ought to be scrutinised from time to time and the time is long overdue for this industry to be examined. I support the Bills.

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