Craig Kelly (Hughes, Liberal Party) Share this | Hansard source

I rise this evening to speak on the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016. Before I get on to some specific comments about the bill, I would just like to respond to some of the comments from the member for Moreton, because he is clearly wrong and the opposition is wrong in its insistence on a royal commission. What the member for Moreton, in his speech, identified was a series of cases where there was a dispute over whether a claim on a life insurance policy should have been paid. Someone had paid the premium and believed that they were entitled to make a claim. And there was a dispute. Commercial disputes happen.

How will a royal commission sort out these disputes? It will not. This is why. The government's proposal to have a tribunal is far, far superior. At the moment the problem that we have is access to justice. If an individual believes that a large insurance company has done the wrong thing by them—and if that amount is above the level where the Financial Ombudsman Service can make a determination on that matter, as it often is—the only alternative, currently, that that person has is to take their claim to the Supreme Court. Unfortunately, in our legal system, the cost of an individual consumer taking their claim to the Supreme Court simply rules out that possibility in its entirety. And that is where the imbalance and the problem is.

A royal commission is not going to solve that problem. All a royal commission would do would be—after a lot of lawyers had run up hundreds of millions of dollars in legal fees—to come up with, maybe, a solution or a suggestion or a recommendation that there should be a tribunal to try to level the legal playing field. Our proposal is: if someone had a claim and believed that that claim should have been paid out but had been rejected by a large insurance company, they would have the ability to take that to a low-cost tribunal to have the issue determined. And why a royal commission would be so detrimental is that a royal commission would not have the power to make those decisions. A properly functioning tribunal is a step above a royal commission.

I would ask members from the opposition: let us work together on this. Do not go down your one-track proposal of a royal commission and nothing else. Let us work together because, with the tribunal, the devil will be in the detail. Let us work together and try and get the details of how that tribunal will work in the best way possible so that those consumers who have had the wrong thing done by them can get true access to justice and, if there has been a breach of the contractual terms, or unconscionable conduct, or misleading and deceptive conduct, those consumers can get fair and just compensation.

I will give another reason why a royal commission is such a bad idea. Under the provisions of our competition act, if there has been unconscionable conduct, or if there has been misleading and deceptive conduct, there is a six-year statute of limitations from the time the conduct was first identified. So the risk is this. Say someone had suffered an adverse consequence or was in a dispute and felt they were badly done by, by a bank or a large insurance company, and say that happened in 2013. Now it is three years plus. If we go down the track of a multi-year royal commission, then, by the time that royal commission gets around to deciding what we know now—that we need a tribunal to determine these cases on a low-cost basis—the risk is that that six-year statutory period would have expired. So the whole idea of getting these people compensation would have been ruled out and they would have been timed out because the Labor Party would have argued against this tribunal, through wanting to go for this show of a royal commission, and timed these people out from having their claim determined. That is why it is such a poor idea to have a royal commission.

When it comes to talking about changing the culture of banking practice, a lot of that culture comes about now because the large insurers and the large banks know—whether it be a small business or a consumer—if they are in a commercial dispute and they know it cannot be handled by the financial services ombudsman because it is above the threshold and the only access to justice for that consumer or small business person is through the Supreme Court, they know it is not a level legal playing field, and they know they can play hardball. They know if the consumer goes, 'Well, I'm going to take you to court', they can laugh at that.

If we are able to fix that problem with a functioning tribunal that levels the legal playing field, that gives someone who has a legitimate claim—and who has been unconscionably dealt with by a large bank or insurance company—the opportunity to have their claim determined in a low-cost, efficient and quick manner, without all the legal procedures and run-up of costs, that is what will change: the culture of the banking sector.

I would hope that members of the opposition would put down their 'opposition for the sake of opposition', work with the coalition on this and let's get that tribunal. Let's make it have all the powers of a royal commission but with the additional powers to be able to make determinations and award legally binding compensation.

On the specifics of this bill, I note that this bill does have bipartisan support but I must admit that I have some concerns with the bill. To start with, I was actually quite shocked at the size of the life insurance industry. The report from the Australian Prudential Regulation Authority said that, as at 30 June 2015, we had 28 registered life insurance companies operating in Australia. So there is plenty of competition. We have 28 companies offering life insurance products, and the net premium income follow-up 2014-15 alone was $60.9 billion. That is an extraordinary sum of premiums that are paid into the life insurance industry. That is the net premiums.

Those 28 large life insurance companies obviously have numerous ways they can get consumers to sign up and buy one of their policies. They could have commissioned salesman or brokers—as many are. They could also have just salaried staff, working on a certain salary, working for them, selling those to consumers. They could also sell them online, with basically no commissioned sales people or no salespeople whatsoever. What this bill is actually doing is putting in a form of price control that regulates what those commissioned life insurance salesmen or financial advisers are paid.

Let's just go through what is being proposed in this bill. Firstly, there are up-front commissions. Often we talk about an up-front commission and we talk about 100 or 120 per cent or higher of the annual premium. That often seems excessive. But whether it is 120 per cent or whatever it is should be almost irrelevant. What should be relevant is the cost of the financial service and advice that the financial adviser is giving. How many hours has it taken him to compile that advice to give to that client? That is what I see as more relevant than whether we saved 120 per cent or 110 per cent—that is outrageous.

Under this bill, ASIC will have the power to see the average 110 to 120 per cent commissions on a premium reduced to 60 per cent from 1 July, and permit ongoing commissions to be set at a maximum of 20 per cent. I cannot think of many other areas in the economy where the government is stepping in to reduce the payments or to set effectively a price cap on what financial advisers can be paid. I am at a loss as to why this is happening. This is a market where there is a lot of competition. There may be arguments about why that is, but that current arrangement has been negotiated by those 28 large life insurance companies with the financial services. So they are now coming to the government, saying, 'We think we're overpaying our sales staff. We want you to cut their commissions.'

Second is the issue of claw-backs. Claw-backs come about with what the industry describes as churn. Someone has a policy for maybe one or two years, then they change it to another insurance company and they may change it to another insurance company. By itself, there is nothing wrong with that. Consumers should be able to change over the years if they find a better policy. If they find a better credit card offer, they should be able to change. If they find a better housing loan, they should be able to change. They should be able to change their bank. There is nothing wrong with that. The only problem that comes about is when those large financial insurance companies have decided they would pay these large up-front commissions, and then they have to continue to pay them time after time, and that becomes an incentive perhaps for the financial advisers to sell the policies and to churn the policies over.

But, again, I am at a loss to see why this is something that those 28 large registered life insurers cannot negotiate themselves with the industry. We have a long, long history throughout the world that wherever governments have tried to enter the market and fix prices it has had substantial adverse consequences to consumers. The best tool to fix any problem is to make sure that there is adequate competition. Competition is always a better tool than price fixing by governments.

When it comes to competition, there are some things that we should work on—and we are—things like better disclosure. If someone signs up to an insurance policy, let them know what percentage commission the salesperson is getting. Let them know what percentage of claims are being paid by that life insurance company. That something that we know ASIC is working on at the moment—a very important step. If a particular insurer has knocked back 37 per cent of claims and another insurer has knocked back five per cent, I know where I as a consumer would want to take out a life insurance policy. That is the best indicator. The only reason I can support this bill is that there will be a review in 2018, which will look to see if there have been improvements in the industry and what the effects have been.

I say in conclusion that we need to be very careful in government. It is very easy to think that government knows best—that it knows what the prices should be and should try and set fair prices. The history of economics throughout the world has shown that that fails. The other issue is that, like anything, when government comes into control something, there are many ways around it. Yes, a large insurance company may be restricted in what it can pay in commissions, but there are many ways other than financial remuneration. What is to stop one of those large insurance companies as an incentive giving a financial adviser a free trip to a conference in the Maldives? These are all issues that we need to look at. At the moment, with great reluctance, I support this bill, but we need to monitor this closely to look out for those unintended consequences, because the history of governments interfering in the market and setting prices has always been a disaster.

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