Nick Xenophon (SA, Independent) Share this | Hansard source

There is no great secret to this. On 3 March, when agreement was reached between the government and me in relation to the whole issue of Natural Disaster Relief and Recovery Arrangements, I put out a media release. I attached to the media release a copy of the letter from the Prime Minister and also the new guidelines to the Natural Disaster Relief and Recovery Arrangements which are attached to the determination 2011, version 1. I can indicate there has been complete openness and transparency in that process.

Essentially the determination itself has been amended. I understand the Attorney-General will also table it tomorrow in the other place. It requires a number of things. Firstly, a state must have reasonably adequate capital or access to capital. That can be done through a number of measures including but not limited to the following mechanisms: commercial insurance or reinsurance or any state COAG reinsurance fund or pool and state department contributions—that is, internal state funds. We know, given the questions of Senator Macdonald, the issue here is one of the Commonwealth having to bear 75 per cent of the brunt of any natural disasters under the arrangements that were in place from 2007 until now, arrangements that were largely in place for a number of years under both this government and the previous Howard government. The state must submit an independent assessment of state insurance arrangements and that includes having state Auditor-Generals being involved, for example, so the states need to tell the Commonwealth what they are doing in relation to insurance. The states must publish the outcome of any independent assessment, which in turn is assessed independently by the Commonwealth, and the Department of Finance and Deregulation has a role in that. I will refer to that process as well.

The first independent assessment must be published and provided to the Attorney-General’s Department by 30 September 2011, with further assessments required no greater than every three years. If there is any significant change in the insurance arrangements of a state, including any reduction of the policy limit purchased, then there will need to be a review of that state’s independent assessment in conjunction with the state. The review will be guided by principles including: that the state has a responsibility to put in place insurance arrangements which are cost-effective for both the state and the Commonwealth for the financial exposure borne by taxpayers at both levels of government; that the onus is on the state to explore a range of insurance options in the marketplace and assess available options on a cost-benefit basis; and that, in the event as a result of that review the Attorney-General makes a determination, which must be published and transparent, and the state fails to follow that recommendation, the amount that a state would be reimbursed under this determination will be reduced in accordance with these principles. In other words, the rate of assistance will need to be reduced if the states fail to take prudential steps in relation to that.

In terms of the mechanism and how it will work there is a 15 paragraph document which relates to the guidelines which sets that out. It would involve a whole range of steps and safeguards including using the Attorney-General and the Department of Finance and Deregulation and ‘utilising such external actuarial expertise required in order to ensure a full and rigorous assessment.’ In other words, it is anticipated that there will be some external expert advice. Each review will include an examination of matters such as the following: the nature of any insurance or reinsurance sought and offered, the amounts of any premiums and excesses, the events and extent of assets covered, the amount covered per event, the maximum possible loss, the reinstatement terms, and the claims experienced in any related matters. It is very comprehensive. The document does have in it any insurance sought and offered because if a state or territory wants to be disingenuous and to say, ‘We got this premium offer which is totally unrealistic,’ it depends what they sought.

For instance, if Senator Macdonald wants to insure his home and insure every nook and cranny and wants full replacement value for every item in that home, replacing items such as antiques—I do not know what he has in his home; I have not been there—he can load the dice so that he will get an extraordinarily high premium if he is seeking an unrealistic term of insurance. There needs to be a question of reasonableness, because I think some of the statements made by the Queensland government have been quite extraordinary where it is saying, ‘It’s going to cost us billions to insure the state’s assets.’ That is patently absurd, from the discussions I have had with those in the insurance industry. I am very sad that the Queensland Treasurer has resorted to personal abuse in relation to my position.