Thursday, 30 March 2006
General Insurance Supervisory Levy Imposition Amendment Bill 2006
Debate resumed from 2 March, on motion by Mr Dutton:
That this bill be now read a second time.
The General Insurance Supervisory Levy Imposition Amendment Bill 2006 is noncontroversial and enjoys the support of the opposition. It is a cost-recovery amendment to the General Insurance Supervisory Levy Imposition Act 1998 for insurance companies directly using the APRA insurance database to recoup costs in operating that database. It removes other insurance companies that do not use the database from being levied. More specifically, the General Insurance Supervisory Levy Imposition Amendment Bill 2006 enables a special levy component to be imposed on a class of general insurance company regulated by the Australian Prudential Regulation Authority.
The bill will amend the General Insurance Supervisory Levy Imposition Act 1998 to allow for the Treasurer to determine the special levy component to be imposed on a class of general insurance company. The measures contained in the bill are designed to provide for increased flexibility in the recovery of costs incurred by APRA. The bill provides that costs incurred by APRA in performing an activity relating to a class of general insurance company are not necessarily recovered from all general insurance companies. For example, the bill will enable costs associated with a national claims and policies database to be recovered only from those general insurance companies who benefit from that database. A class of general insurance company can be determined by the classes of businesses written by the general insurance company.
The general position taken by this government is that regulators should be funded by cost-recovery mechanisms through levies on the sector. Labor generally supports this position. However, it should also be noted that the introduction of these levies does constitute a breach of commitments the government have made on the introduction of new taxes. These commitments were made before coming into office and have been broken on a regular basis. They have broken them in a range of other taxation areas such as income tax and of course company tax.
The bill also creates the power for the Treasurer to issue new taxes without legislation. In general this is not a sound way forward and Labor would prefer that matters relating to the imposition of charges of this nature occur through legislation rather than regulation. But the opposition looks upon the bill as being noncontroversial and an appropriate initiative. The bill has our support.
I am pleased to rise to speak to the General Insurance Supervisory Levy Imposition Amendment Bill 2006. The government recognises the importance of ensuring that consumers are able to access affordable insurance. Insurance provides the important function of allocating and pricing risk. If insurance is unavailable or unaffordable, many economic and social activities simply do not take place. This is particularly true in the case of professional indemnity and public liability insurance. Many will remember the crisis in public liability and professional indemnity insurance that occurred in 2002. This was due in part to the rapid increase in payouts through the courts for negligence during the 1990s and into the early part of this decade. This pressure was compounded by the collapse of HIH and the attacks on the World Trade Centre in 2001. This was followed in 2002 by the concerns that we had with medical indemnity.
Many professionals in my electorate of Moncrieff on the Gold Coast, as well as in other centres around Australia, were at risk of not being able to practise. In addition to that, community groups were unable to hold important social, cultural or sporting events. I spoke with many different community groups in my electorate about these matters, regularly taking the opportunity to highlight to them the moves the government was taking and the reforms it was making to ensure that, when it came to public liability in particular, they would be catered for and that they would be able to continue to undertake their community activities, which form such an important and necessary part of the social fabric not only of the Gold Coast city but more broadly.
I am pleased to say that the government’s actions in the area of tort law reform, specifically through changes to the Trade Practices Act and the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004, have certainly delivered results, especially for community groups. To ensure that the benefits of these reforms are passed on to the community, the government asked the Australian Competition and Consumer Commission and the Australian Prudential Regulatory Authority to examine and report on the market for public liability and professional indemnity insurance. As a result of this work, insurers and members of the community can now access information about the markets for these types of insurance. The good news is that both public liability and professional indemnity insurance is more available and affordable now in Australia.
The fifth ACCC report, released in August last year, shows that premiums for both public liability and professional indemnity insurance fell by four per cent in 2004. Similar results emerged from APRA’s first report from the national claims and policies database, also released in August last year. This is certainly very welcome news for the community. It means that community events such as fetes and festivals, which were at risk, are now certainly under less financial pressure and indeed are continuing in our community today.
One way the government can continue to work to ensure that insurance remains affordable in these areas is to ensure that the insurance industry remain able to access reliable data to help them better understand the nature and extent of risks in the area of public liability and professional indemnity. With this in mind, the national claims and policies database was commissioned by the government, in the context of concerns in relation to the availability and affordability of public liability and professional indemnity insurance. Unlike the ACCC survey, the database has been designed to capture public liability and professional indemnity information directly from insurers. Over time, this will provide the most accurate and comprehensive picture of the availability and pricing of public liability and professional indemnity insurance in Australia. The insurance industry, through its representative body the Insurance Council of Australia, welcomed the establishment of this database in its media release of 20 April 2004. Information within the database is used to report on the market and to assist insurers, government and other stakeholders in analysing the market.
As mentioned, the government released the first report from the national claims and policies database last August. APRA continues to work with the insurance industry to refine the accuracy of the data collected and to provide more specific analysis to help with pricing. Insurers operating in Australia are regulated by APRA. In keeping with the general cost-recovery principles that this government has established and continues to ensure that we abide by, the costs incurred by APRA in managing the regulatory framework are recovered from the insurance industry now through a supervisory levy.
APRA also incurs costs associated with tasks not directly related to its supervisory responsibilities. For example, it incurs costs in operating the national claims and policies database. However, not all general insurers offer public liability and professional indemnity insurance. This bill provides for a special levy which will allow the recovery of costs from a class of general insurance company—namely, the bill will allow the recovery of costs only from insurers who are contributing to the national claims and policies database. I certainly believe that only those insurers who contribute to and thereby can benefit from the database should contribute towards its costs. Insurers who do not use the database should not expect to fund it. The industry has been aware of the levy from the outset. This makes good sense for the industry and will assist in making sure that public liability and professional indemnity insurance remains available and affordable.
I was certainly pleased to note that the shadow minister indicated Labor’s support of this bill. I am pleased to see that there was not a scare campaign with regard to this bill, because it will have a small—albeit exceptionally small—impact on premiums. But the premium impact is certainly more than outweighed by the benefit that will flow to the industry broadly and generally as a consequence of the imposition and of the creation of this database. I commend the bill to the chamber.
in reply—At the outset I thank the member for Moncrieff for his contribution to this debate on the General Insurance Supervisory Levy Imposition Amendment Bill 2006not just for his speech a few moments ago but also for his chairing of the backbench committee, which has been a significant part in the government providing for good outcomes in the insurance area. He has had a direct impact in helping local community groups not just in his electorate but around the country.
The government is committed to making sure that public liability and professional indemnity insurance remains available and affordable in this country. In 2002 a very real crisis was facing the community, the insurance industry and the government. Both public liability and professional indemnity insurance were getting harder to find and more expensive to purchase. This was having a significant and detrimental effect on the community. Many professionals such as doctors, architects and engineers were reporting dramatic increases in professional indemnity premiums. As a result, many were considering leaving their professions.
When the government looked at what was happening it found that on average premiums for professional indemnity insurance had increased by more than 65 per cent in the two years prior to 2002. The situation was, in this government’s view, untenable. The government also saw other significant issues facing the community. In particular, community activities such as fetes, social clubs and sporting events were under threat and faced cancellation. In many cases this was due to insurance simply not being available or, if it was available, premiums had increased beyond the financial resources of the organisation. Many of these organisations unfortunately were not-for-profit community groups.
The government responded to these concerns in the first instance by convening a series of ministerial meetings, commencing in March 2002. These meetings resulted in a nationally coordinated approach to improve the affordability and availability of insurance. Since that time each jurisdiction has undertaken a range of tort law reforms, which has seen public liability and professional indemnity premiums reduce.
From the outset, however, it was recognised that the lack of reliable and public information about these forms of insurance was a problem not just for the industry but clearly for the government as well. It also meant that consumers were in the dark about average premiums and the availability of such insurance. Therefore, the government asked the Australian Prudential Regulation Authority, APRA, as the industry regulator, to build a detailed map of the nature, pricing and coverage of public liability and professional indemnity insurance. APRA, in close consultation with the insurance industry, has developed the national claims and policies database, which will capture a range of information to help with the pricing of public liability and professional indemnity insurance. The database is designed to assist the insurance industry to better assess risk, to determine appropriate premiums and reserves, and to facilitate greater transparency in commercial decision-making by insurers. APRA is currently collecting a range of information directly from insurers. Over time the database will provide the most comprehensive and reliable information about public liability and professional indemnity insurance in this country.
The Insurance Council of Australia, which represents over 90 per cent of insurers, has supported the development of the database. It should be commended for doing so. I appreciate its support for this very important development. In keeping with existing cost-recovery principles, this bill serves to ensure that APRA recovers from industry the costs associated with the database. It is worth noting that it will only collect the levy from those insurers who contribute to it and thereby can benefit from it. This bill ensures a continuation of the database for the benefit of not just those insurers who provide public liability and professional indemnity insurance but, importantly, consumers and the community more broadly. On that basis I commend the bill to the Main Committee.
Question agreed to.
Bill read a second time.
Ordered that the bill be reported to the House without amendment.