Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Financial Services) Share this | Hansard source

The Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Bill 2019 is late. Like many of the government's responses to the royal commission, it comes delayed to this parliament. This particular provision relating to unfair contract terms in insurance contracts was identified as something of a priority by the Hayne royal commission into financial services when it reported in February last year. Aside from that, this is an issue that has been identified by this parliament for close to a decade now as something that required urgent attention to protect consumers from what is often a very complicated financial transaction relating to the negotiation of insurance contracts.

These are really important reforms for consumers. They provide additional and fairer protection for consumers when it comes to insurance and funeral insurance and to dealing with mortgage brokers and accessing mortgage broker services. As I said, these are complicated financial transactions. They often involve very long product disclosure statements. Most people don't read these statements, so they are not aware of the finer details when they are entering into these contracts. In relation to insurance, when people go to make claims and they haven't read the fine print, they find that they are not eligible for compensation for particular items they thought they were insured for. On many occasions, to the average Australian, the negotiation and the inclusion of those terms would seem unfair.

I mentioned that these are issues that have been identified by this parliament going back almost a decade. It was first identified under the previous Labor government, when David Bradbury was the minister. In 2013 he attempted to bring legislation to this parliament to enforce unfair contract terms in the insurance contracts regime. Unfortunately, the parliament lapsed before that could be prosecuted. In addition, there have been numerous inquiries imploring the government to act on this issue. Recommendation 6 of the ACCC's first interim report on the Northern Australia insurance inquiry in 2018 recommended provisions such as these. Then there was recommendation 3.1 of the report of the 2018 Parliamentary Joint Committee on Corporations and Financial Services inquiry into the life insurance industry; recommendation 11 of the 2017 Senate Economics Committee inquiry into the general insurance industry; and proposal 10 of the 2017 Australian Consumer Law Review. So the government's argument that the royal commission only reported 12 months ago and the government has been consulting—there has been an exposure draft—and gaining the necessary evidence to bring this to parliament does not hold up. This is an issue that has been identified through parliamentary and other inquiries for close to a decade now. Unfortunately, it is too late. Many Australians have suffered at the hands of large insurance companies when they should have been protected by earlier action from this government on these issues. Nonetheless, this bill does finally bring the unfair contract term regime to the parliament and Labor will be supporting this particular provision.

The bill contains three schedules which implement some of the recommendations of the financial services royal commission. Schedule 1 extends the existing protections of the unfair contract terms regime under the ASIC Act to insurance contracts governed by the Insurance Contracts Act. Schedule 2 extends consumer protection provisions of the ASIC Act to cover funeral insurance policies. Schedule 3 sets out a new best interest duty for mortgage brokers and allows for new regulations to restrict conflicted remuneration being received by mortgage brokers.

Schedule 1 finally implements the financial services royal commission recommendation 4.7 to extend the provisions and protections of the ASIC Act to unfair contract term provisions to insurance contracts covered by the Insurance Contracts Act. This means the bill will only apply to insurance contracts taken out by consumers or small businesses, not group insurers. One of the problems under our current insurance contracts regime is that the ASIC Act presently excludes terms that define the main subject matter of the contract from the unfair contract term regime. This bill will rectify that deficiency and it will amend the ASIC Act to provide that the main subject matter of an insurance contract is limited to the description of what is being insured.

The bill will also amend the ASIC Act to exclude terms that set the quantum or existence of the excess or deductibles in an insurance contract from the unfair contract term regime. This bill also amends the ASIC Act to allow for third-party beneficiaries to bring actions against insurers under an unfair contract term regime. They would be examples where a son or daughter of someone under a particular form of personal insurance seeks to bring a claim that's been denied by an insurer. This regime will allow a person to bring an action under the provisions of the act where they believe that there has been unfairness. But the test of unfairness, importantly, under this bill relates to what's been negotiated between the parties to the contract—in other words, the insurance for which the person was covered, not the third-party beneficiaries. It also maintains the current obligation under the Insurance Contracts Act for the parties to insurance contracts to act with utmost good faith.

In addition, the bill will ensure that terms that define the main subject matter of an insurance contract will be excluded from the UCT regime; however, terms defining the main subject matter of an insurance contract will be limited to terms which define what is being insured: for example, a house, a car or a person. Terms defining the upfront price payable for an insurance contract will continue to be excluded from the unfair contract term regime. Terms defining the quantum or existence of the excess or deductible of an insurance contract will also be excluded from the regime if they are disclosed up front and they are transparent and known by the person taking out the insurance.

Some examples of how this particular bill, once it is enacted, will assist consumers and rectify, hopefully, or provide the opportunity for people to take actions to rectify deficiencies in insurance contracts include home building insurance terms that provide that the most the insurer will pay in the event of loss of damage to a building is the cost to the insurer of rebuilding or repairing the building as opposed to the actual cost of the repair, which may be higher for the insured. When you go to insure your house you believe, if it burns down or something like that, it is going to be repaired in a similar vein to what you had there in the past. There have been provisions in contracts that allow insurers to get away with not repairing or not providing recompense to what was there in the past.

Other examples include: car insurance terms that require the insured to provide the name, registration and contact details of an uninsured at-fault driver when making a claim; consumer credit insurance terms that prevent an insured from making a disability claim if they were not diagnosed with a disability prior to leaving work; and travel insurance terms that allow a claim to be denied on the basis of a blanket mental health exclusion. They are examples of some of the provisions which will provide people with the opportunity to launch actions if actions such as those are taken by insurers in the future, once this act is enacted.

Schedule 2 of the bill implements the financial services royal commission recommendation 4.2, which recommended the removal of the exclusion of funeral expenses policies from the definition of 'financial products' under the Corporations Act and also recommended amending the ASIC Act to put beyond doubt that the consumer protection provisions under that act apply to funeral expenses policies. The ASIC Act currently provides that funeral benefits are not financial products and are, therefore, not subject to the consumer protection provisions of the act. The effect of this carve-out from the act is that providers of funeral expenses policies do not have to obtain an Australian Financial Services licence, are not bound by the general conduct obligations contained in section 912A of the Corporations Act and are not restrained by the antihawking provisions in the Corporations Act. As a result of that, we've seen some terrible behaviour that was highlighted in the financial services royal commission in this space by people and organisations selling dodgy products to, in particular and unfortunately, First Australians—Aboriginal and Torres Strait Islander Australians—in situations where people are vulnerable.

The royal commission uncovered evidence of the significant harm that can be caused to vulnerable consumers through poor sales practices adopted by some funeral expenses policy providers. Funeral expenses policies provide for the payment of funeral costs up to a nominated limit, and the payout of a policy only covers the cost of the funeral or things incidental to it, but nothing else. Some of the stories that were uncovered by the royal commission in the examples found that people with funeral insurance were paying considerably more in premiums than the payout that they were actually getting upon the case of death. There is a significant concern amongst consumer advocates that the Aboriginal Community Benefit Fund, which was heavily criticised in the royal commission, may not be able to conform to these changes. A failure of this organisation may leave a large number—it's estimated at about 19,000—of Indigenous policyholders without any insurance, after paying for it for many years. The royal commission heard evidence that this fund was accused of ripping off and misleading Indigenous families by creating pressure through sales tactics to sell them expensive funeral plans. When the fund's CEO appeared before the commission, it became clear he had no background in insurance at all and no qualifications that you would expect to be necessary for someone selling these types of policies to people.

The shadow minister, the member for Whitlam, has moved a second reading amendment calling on the government to protect the customers of the Aboriginal Community Benefit Fund. People simply cannot be made worse off because of the passage of this bill—that's something that we implore the government to take notice of. The government must protect these people in this situation. It's been identified by the royal commission as a big issue, and, if the passage of this bill means that that particular fund falls over, those people deserve protection. They've paid for that insurance over the course of their lifetimes.

Schedule 3 implements some of the financial services royal commission recommendations in respect to mortgage brokers, specifically recommendations 1.2 and 1.3, which recommended applying our best interest duty for mortgage brokers and banning conflicted remuneration for mortgage brokers. One would think that mortgage brokers would act in the best interests of their clients, but, unfortunately, as the royal commission uncovered and as numerous inquiries have uncovered, like most of financial service transactions in this country over the course of the last decade, that hasn't been the case. Notably, the government has chosen not to accept royal commission recommendation 1.3, unfortunately. This schedule, instead, provides for regulations to restrict the circumstances under which conflicted remuneration can be given in relation to mortgage brokers' services. The best interest duty will require mortgage brokers to act in the best interests of their clients and put their clients' interests as a priority when providing credit assistance. As I said earlier, one would hope that they do act in that manner, but that hasn't been the case. This government doesn't have the best record, I've got to say, when it comes to implementing best interest duties for financial services for consumers.

We all know that the government opposed FOFA when it was originally introduced by the Labor Party back in 2012, which provided a best interest duty generally for the provision of financial services in this country. Believe it or not, those opposite opposed that. They opposed the provision of a best interest duty in the FOFA regulations in that catch-all provision. The regulations restricting conflicted remuneration are expected to prohibit a number of forms of conflicted remuneration, including volume-based benefits, campaign-based benefits and benefits that include a clawback period greater than two years.

In conclusion, we support this bill. I do want to thank the Consumer Action Law Centre, CHOICE, Super Consumers Australia, the Financial Rights Legal Centre and WEstjustice for their feedback in Labor formulating our position on this important reform. It's overdue but it's now time for the government to get on and implement these important reforms and protect consumers in financial services.

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